Sideways... For Now
I've been away from the home office in Denver all week. Tending to business and a bit of pseudo-vacation in western New York state does not allow one to do either very well, let alone fixate on the markets. Can't wait to enjoy a real vacation during the entire week of Thanksgiving where looking at any financial charts will be purely an accident, let me assure you that! Periodic if not frequent breaks are important to avoid burnout and emotional attachment to market behavior.
Speaking of charts, once again my laptop fails to open Qcharts tonight. Whether it is the unit, dial-up connection or chart service itself I have zero detailed graphics to work with right now. No problem running them all day but when I try to tap in each night, nothing shows.
With that in mind we'll default to bigcharts.com who can always be counted on, if only for a general view of what lies ahead. No real need for detail tonight anyway as the near future won't clearly resolve itself up until Tuesday's close or Wednesday session at the earliest ahead.
With our next FOMC event decision announced next Tuesday at 2:15pm EST, anything that happens before then is mere jostling until then. Whether it is .25, .50 or more is the only guesswork left as odds for further action are 100% according to Fed-Fund futures traders.
I recall a time in recent history when everyone touted how interest rate cuts take six - nine months to work their way thru the system. With nine consecutive reductions behind us in ten months, most have yet to be felt under this theory. Traders point at lagging & current economic indicators as proof that further reductions are needed to boost the economy now, yet it takes 1/2 to 3/4 of a year before a November 6th cut could possibly take effect? Does that make sense to you? How can further cuts now do anything at all the previous nine have not before July 2002 arrives?
But Greenspan & Co are still in full-blown panic mode despite the cool, collected image Easy Al portrays in public. Whatever it takes to spur the economy now can be unwound later: just get the darned thing running again! Suits us fine that they over steer every time, so long as we know what to do in front of their blundering. More on that in a bit. Let's look at some pictures first:
(Daily Chart: Dow)
Here we see the Dow mired in a range between 9,000 and 9,500 for the past month. Consolidation theory suggests this sideways pause is basing action for the next leg up, considering it began to roll sideways in an uptrend to begin with. For a potential upside target we take the center of that consolidation range as a figure and subtract the recent low to arrive at a net value. In this case it would be 9,250 minus 7,950 recent low for a total of 1,300 Dow points.
If 9,250 is indeed halfway to the upside target we add 1,300 to it and arrive at 10,550 ahead. Plausible? Could be, as well discuss later. Note daily chart stochastic values made a quick cycle down and are turning bullish reversals once more.
(Daily Chart: NDX)
Similar story for the NDX. Consolidating near 1,400 with a recent low near 1,000 gives us an upside target of 1,800 before the next big downward reversal occurs.
(Hourly Chart: OEX)
The 60-minute view for S&P indexes (OEX shown) tells us that stochastic values are overbought two sessions straight and experience assures us this will not last much longer. A pullback to oversold extreme will definitely happen within the next two sessions, that we can be sure of. Will that lead to the next high- odds call plays?
Maybe, and that's how we should play it if daily charts slow-bar value rises back up the charts. But weekly charts already extended near or in overbought extreme suggest another continuation move to equal the previous distance is unlikely for sure. I would look for those listed target areas ONLY IF indexes manage to break recent resistance and hold bases at higher levels from there.
Gonna Stay Bumpy?
There is also a growing belief that the worst is behind us or still here but not ahead. Each additional rate cut makes money cheap if not downright free compared to current inflation cost. Huge liquidity pumped in by the Fed is hot money that must find a home and debt instruments are not it.
A few readers emailed me to question whether the huge asset allocation into S&P 500 futures a few weeks ago that drove markets higher in a big way was actually the U.S. government's crash protection team at work shoring things up with your tax dollars in secretive fashion. That would be my guess considering how zero insiders would even talk about the event let alone speculate who did all that buying, a very unusual case in a financial world filled with huge egos with a need to know and tell.
Right now it would take a fundamental act worse than collapsing the World Trade Center and chunk of Pentagon to reach new market lows, a scenario I can't even dare fathom. Barring such an unthinkable condition, we will not see recent lows broken this year if at all. My guess would be next March/April at the earliest once hopeful investors with weak hands have time to buy stocks at lofty prices that sit & churn for a while.
Go Long With Reckless Abandon?
Just because markets refuse to go down doesn't mean they are on their way up from here. In the same manner we have no waves of eager sellers right now, there exists a distinct lack of eager buyers as well. Joe & Jane Average will not buy "the worst is behind us" mantra sight unseen. Everyone I talk to at arm's length the markets will not stick another plugged nickel in their equity accounts until living proof exists that the economy is on its mend. Period.
All that cash on the sidelines they own will continue to grow thick layers of moss until they here things like solid earnings, unemployment plunging, manufacturing is up, retail sales are up, etc. They won't be fooled again... at least not this soon.
What we see right now are the same tired dollars chasing sectors around as markets churn sideways. I would not be surprised to see indexes rising on lighter volume than recent up towards the lofty targets noted above in the chart work. By the same token I would not be surprised to see November churn sideways and sell off in December right when everyone goes long for the Christmas rally that's sure to come.
Great time to unplug those charts and turn off Maria & gang for a week as well. Thanksgiving week ahead will be abandoned by market pros and I strongly suggest you follow their lead... you can be sure I will!
Best Trading Wishes,