Guess What? We're In Recession!
In the understatement of this young decade, analysts made it official today: the U.S. economy slipped into recession last March. Boy, I'm glad we got that straight... we've been wondering if the economy is really contracting or not, now haven't we?
The report also went on to say that if this recession is an average of others, it will end sometime around July 2002. The idea that stocks anticipate 6 to 9 months ahead is bullish justification for the rally to continue from here. Of course, bears want to know what the previous portion from 9/24 to date was based on. Wouldn't this news already be price into stocks up +50% to +200% from recent lows until now? That's the two-sided coin we attempt to trade these days.
When AMZN can ramp +30% in one session on news that UNIT sales are up, we realize the top of this move is not yet in sight. I wonder just what all those units are, the mean gross profit for each and actual revenue comparison to previous years. But we'll get more "pro forma" news from companies for weeks on end, creative math designed with an end in mind and factored backwards from there to make it all work.
Am I the only one AMZN has spammed every day for weeks imploring me to order now before free shipping runs out soon? Today's spam states that free shipping ends tomorrow, so maybe the email campaign will desist. Wonder what that record number of units, widgets, whatever AMZN sold cost them to ship au gratis?
Anyway, that's all fundamental stuff not necessary for making or saving money with. I avoid getting caught up in that type of minutiae that means nothing to traders, only buy & hold investors. We need bullish charts to go long, bearish charts to go short and no worries other than that.
Wonder what the charts look like tonight? Me too... let's go see:
(Daily/30-Minute Charts: Dow)
Daily chart of the Dow shows price action bouncing off support and heading higher. Is this a good time to get in? Well, we can easily see how previous times buying at black line support only resulted in a break lower before the market went higher from there. I will wait for a pullback down thru support and subsequent bounce before staking call plays for any length of time. Count how many instances chasing price action higher turned out to be a poor entry yourself and see what you determine.
Thirty-minute chart (right) shows a bullish triangle of sorts in formation, and a break Tuesday or the next session at latest is likely. With overbought stochastic values once more, I'd look for rejection of 10,000 level and call plays on the dip that would ensue.
(Daily/30-Minute Charts: NDX)
The NDX continues to walk its channel since late September and will resume the fight with immediate resistance tomorrow. Its 200 DMA looms just above current levels too, and may not fall easily. Stochastic values are making a bullish reversal, so this one should advance in the general term as well.
But that doesn't mean buying in space right here is a good idea. With a bearish ascending wedge and overbought stochastic values on the intraday chart, I'd wait for the next entry on a pullback to oversold extreme myself.
(Daily/30-Minute Charts: SPX)
Same for the SPX (and OEX not shown) which look like NDX channels and Dow stochastics in a blend. Bumping resistance here and 200 DMA at 1182 (not shown) will create altitude struggles as well.
(Daily Charts: SMH & BTK)
I looked at all of them that list index or HOLDR options and none appeared better than the big two depicted above. The SOX is still a bit weaker than BTK on a relative basis, but may offer more upside potential from here.
The Biotechs already broke well above their 200 DMA and look to be poking outside the ascending wedge formed since late September. Stochastic values are turning bullish but quite near overbought extreme.
The Semi-conductors are making a clear bullish reversal near oversold extreme themselves and look to have more upside ahead. They must clear the channel lines and 200 DMA in days or weeks to come, but probably offer more potential to buy & hold call players than the BTK at this same stage of the game.
Does that make Tuesday morning a call-play entry? Hardly. Both have 60/30 minute chart signals buried in overbought extreme and better entries are ahead when intraday charts show pullbacks to support on oversold stochastic readings, most likely to happen within the next two sessions ahead. Trigger-happy bulls are sure to let the chase instinct compel them to buy sooner, watch price action promptly pull back from there and promise never to chase a chart again. Said easy: done hard.
Look for the next CLEAR pullback to support for best call play entries ahead. Fall prey to chasing the market at your own peril: I did that enough times in my life to realize I seldom liked what I caught once the chase was over. Here's hoping you learn the same in a less costly fashion that long ago taught me!
Buzz Lynn is finishing his holiday travel a bit delayed tonight and will share his words of wisdom tomorrow. I expect IS will be able to test the upside on subsequent pullbacks later this week and beyond, but we are digging for bullish gold in a mine that has weak overhead timbers shoring up tons of rock. If that upper support gives way and overhead supply comes down upon us, we do not want large amounts of capital at risk.
The ceiling above this market should aptly hold for now, but what is your plan for capital management/preservation if it doesn't?
Best Trading Wishes,