I spent the past weekend tromping around brushy bottom lands of the N. Platte river in North Platte, Nebraska with my outdoor cohort Eric Utley of OI editor fame. Four hours drive up, four hours drive back and every hour in between spent by two traders together leaves plenty of time to talk markets, especially when searching for whitetail deer that are smarter than us. While we're certain there is no need to buy chicken for dinner anytime soon, we are less certain about near-term market direction.
Eric is one of the brightest market analysts I know. He has an incredible grasp for both fundamental & technical aspects of the market universe and I value his outlook highly. To be honest I was hoping he'd have some forward guidance missed by me on where price action was going but alas, no great conviction was found. We hashed and rehashed every different indicator and catalyst possible but in the end remain more uncertain than confident of what lies directly ahead.
We are in the sweetest period of time for markets to rally based on seasonal tendencies. The September events washed out a ton of weak hands and our Fed has mortgaged the future while pulling out all stops to lever the present equity markets by forcing cash from very other hidey-hole that no longer offers investors a place to even keep pace with inflation. All signs point to nothing but straight-up markets based on a myriad of near-term fundamentals.
(Daily Charts: Dow & NDX)
But daily charts do not point towards extreme underlying strength right now. If upside pressure were so great, stochastic values would not be blatantly bearish and ascending channels would be broken outside of to the upside in earnest. Instead we continue to have a picture of weakness today.
Did today's airline tragedy thwart what would have been a solid rally instead? Impossible to say, but it is a clear example of why all that sidelined cash is not chasing stocks right now. Early indications are that the airplane failure had nothing to do with terrorism and is merely an isolated incident of extreme, unspeakable tragedy in itself. That being said, we continue to have an edgy market fraught with extreme volatility susceptible to each piece of breaking news that comes along. Hardly an environment where a majority of buyers feel good about long-term investments right now.
(60/30 Minute Charts: Dow)
The Dow's daily chart shows price action struggling at some key resistance, no to mention forming a bearish widening pattern (not shown) as well. Intraday charts indicate price action knee-jerked to today's news before returning to the mean, which is nowhere. With bond and most futures markets closed for trading today, it was not a session for decisive results to be had either way.
We have another consolidation pattern of sorts and bearish stochastic values as well, but they could flat-line and drift higher to follow price action rising for now as well.
(60/30 Minute Charts: NDX)
The NDX is tracing a somewhat loose bearish descending triangle in its 60-minute chart but this one is not very descript at all. Of noteworthiness is the fact that today's lows have held support three times this month so far.
Our 30-minute chart (right) shows price action coiled into a wedge that broke down and bounced back up into a longer time frame ascending bear flag as well. With bearish stochastic values right now, it doesn't look ready for an upside explosion from here.
(60/30 Minute Charts: OEX)
We could make a case for the S&P indexes forming bull-flag patterns or even connect relative lows from 11/5 to date and come up with neutral wedges instead. Still, with bearish stochastic values both in overbought extreme right now we know that lower prices are more likely than higher from tonight.
(60/30 Minute Charts: SPX)
Ditto for the SPX, with a slightly different look on price action behavior. When we have consolidation for days on end and price action that gets briefly whipped around in the interim, it is possible to draw trendlines and patterns that make us dizzy at best. I like to use patterns as confirmation that a move is about to ensue and wager that oscillators in one extreme or the other will tips the odds of direction in my favor. Right now we have all time-frame charts in overbought extreme from weekly on down. Not the most opportune time to go long calls in this current cycle.
But It's Different This Time
By far the most popular thesis was seasonal patterns of bullish November to March timespans in addition to artificial stimulus by the Fed. Seems like everywhere I turn, traders are emailing me about long-term trendlines on monthly charts that price action is continuing to test right now. More than a few traders said that if these historical trendlines are broken they will throw their accounts at the market on long calls.
Well, that would probably work short-term because every website I cruise is touting these lines in the sand as well. Believe me when I say that a break AND CLOSE above those trendlines would usher in waves of buying... but for how long? Would that spawn a new bull market or prove that such a calf was "thrown"? (Proper slang term for cows having offspring is "Yup, she throwed her calf") Remains to be seen.
Readers also pointed out that many of the overbought declines on posted monthly chart went down less than the ensuing rally once oversold was reached. I agree wholeheartedly, and have stated in here numerous times for posterity that I feel 9/21 lows are safe until at least Mar/Apr 2002 if not beyond.
I also know another fact: price action always, always went DOWN before up in the past six weekly chart setups we have now. I will try the downside first until price action dumps me out or weekly & daily charts release from overbought extreme and turn bullish reversals from there. At such time I'll happily buy calls once more with reckless abandon, but not one moment before. That approach has not failed since late 1999 and very, very seldom does at any time in history as well.
Best Trading Wishes,