Selling All Rallies
The battle cry of current traders. What's worked like crazy since September 2000 seems to remain in vogue even now with little sign of failing anytime soon.
Of course we can and very well should expect plenty of violent rallies to erupt between now and the ultimate market "bottom" which lies ahead at or below April's lows. Price action seldom goes straight up or down without pause and after seven consecutive negative closes for the Nasdaq markets we best be looking for a relief rally sometime soon.
Then again, traders afraid to go short after the third & fourth straight downward sessions missed all bearish profits since then. We can never say when a streak will continue or end and must play the markets as action dictates.
Speaking of which, why not flip through the weekly/daily chart picture once more to see where overall direction may take us? Please join me in the latest session of, "As The Market Turns".
(Weekly/Daily Charts: Dow)
The Dow touched its 10,600 area twice last week and bounced from there. Will a third test be the charm? Should that fail to hold again we see 10,550 area as the 20-week moving average and price magnet for support. A break below this would call for 10,400 after that.
Weekly stochastic values have just begun a very clean bearish reversal from overbought as have all the major indexes in unison.
(Weekly/Daily Charts: QQQ)
Weekly stochastic values are now just barely underway in their latest bearish reversal cycle. Nasdaq 100 failed to confirm a bullish triangle (green & red pattern), which is quite bearish in itself. Also, price action trades below the 20-week moving average and overall picture doesn't show a single bullish sign in this entire template.
(Weekly/Daily Charts: SPX)
I hope this isn't repetitive to the point of boring & mundane. The big index is on its way lower as well and next strong arms are at the 1190 level. Broke a long-term bearish pennant last week in a big way and currently trades below the 20-week moving average as well.
(Weekly/Daily Charts: OEX)
Ditto the S&P 100. Mirror image chart of the big brother, I'd look for 610 and then 590+ zone for next stops on the way down.
Who Let The Bears Out?
You saw the same big-picture charts that I do: how does the market's future appear in your eyes? One case I can make for market bulls is the combination of oversold daily chart stochastic values and the next FOMC event a week from Tuesday. Could be time for a relief-rally bounce heading into that and rest assured that the bullish spin shall soon begin.
We will hear how another 50-basis point cut is great for the markets and indeed it should be. We will hear that a 25-basis cut is good for the markets because that means the Fed sees economic recovery soon. Heck, they're gonna push the idea on us that no further rate cuts at this time is bullish because that means the Fed sees green pastures dead ahead! Don't think all of this pre-spin conjecture is true? Watch the media and see for yourself as they once again attempt to revive the bull by blowing air up his nostrils or some other end.
And maybe that will work. Perhaps a summer rally is just around the corner and new market highs are nearly in sight. I for one would welcome such with wide-open arms but that's not how I'm playing it. Long-term charts suggest otherwise.
I expect we will experience continued volatility and wide market swings for many months and maybe much more. It is highly possible that traders & investors who are standing aside and "sitting in cash" until the markets "straighten out" may develop saddle sores before sustained conditions return they falsely believe are the norm. Late 1998 to early 2000 were not the norm... far from it. Those expecting similar markets to return will probably never rejoin us in the Great Game we call our profession.
But traders we are and trading it shall be. Until weekly chart stochastic values remain in descent from overbought I'll remain bearish overall. Short-squeeze rallies no matter how induced will not fool us: they've proven lack of durability after each of five recent rate cuts with no exception and the ability to prop markets up from there grows weaker every time.
Best Trading Wishes,