Rally Ho? No.
Wednesday's euphoric ramp was practically all the action we saw this week. Two sessions before and after were quite forgettable and rather non-tradable save the usual small-range scalps.
Media pundits continue to force feed hope that the economy has turned by trumpeting bullish data and explaining away or burying bearish data. So? What else is new? Those of us who've lived these cycles a few times smell a setup for the future plunge, but I would not be staking those long-term put plays quite yet.
Haliburton gets whacked in half today for a -$5 billion haircut. Market insiders far savvier than me suggest Ford may be headed for government bailout and AT&T the way of Bethlehem Steel if it makes a few bad decisions coming due soon. 377,000 people dropped from the unemployment roles this week but almost that many dropped from non-farm payrolls as well. That means the first group did not suddenly find new careers, and likely just ran out of time on their limited benefits.
We could go on and on but why bother? All I'm trying to do is give a sense of balance and equilibrium. The media goads us to buy & hold or forever miss the bottom. Clear & present danger signs still exist to say otherwise. For those who may think I'm a perma- bear without hope are wrong: nothing I'd love more than a market that just goes up without end.
I just got off the phone with one of my close, childhood friends whose small business is on the brink of collapse without enough working capital to function. Where did he keep his small business working capital since 1999? Take a wild guess. If you guessed NASDAQ stocks, you're right. Now he calls to see if there's any hope that some dead-fish plays like GBLX have any hope, as that's all the capital he's got left.
Back to our market story. Let's take the usual unbiased look at long-term charts and dial down to a smaller view from there. Care to join me? Let's go!
(Weekly Chart: NDX/QQQ)
First up: the NDX. Still rising off support and trying mightily to reach the ceiling above, which creeps down and closer a bit more every week. The past twelve weeks straight have walked a narrow ascending channel, which is a bullish trend but bearish formation. Eventually these patterns break to the downside and this one may not have forever to go.
Overbought stochastic values for half that time frame so far will not remain pinned in lofty extreme forever. Make no mistake: they will break down to oversold again before long and prices then will be lower than they are at the break. My money says lower then than now, as I guess the next high is closer than next subsequent low.
(Weekly Chart: Dow)
Take a gander at that incredibly steep ascending wedge (bearish) the past twelve weeks as well. Projected out from here, we should see 11,000 by Feb 2002 if the incline holds. Bulls will also say that price action can break the formation, coil sideways to base and then ascend from there. No need to ever pull back below 10,000 again in the future of mankind. Stochastic values say otherwise.
They too will not remain pinned forever and will eventually return to oversold extreme. When & for how long? No one can say. But that will be the next high-odds investment-grade bullish entry point. Until then I'll readily play calls, but for very short durations at best.
Note how this week's action was pinned between 50 week moving average and 200 week moving average with price action closing below both. Two more measures of overhead resistance to gauge? Looks that way to me from here.
(Daily Chart: Dow)
The same chart dialed-down to daily duration instead. Clear wedge walking towards the vaunted 11,000 mark but price action stalled the past three sessions below 200-day moving average. This too is a bear-pennant wedge and expected to break below eventually. Where is the next solid support? The 50-DMA right at 9,500 is one obvious choice.
Daily Chart: QQQ)
And the QQQs daily view shows it sitting right on the 200-DMA the past three sessions and counting. 50-DMA down near 36+ is rising in bullish fashion but could always be counted on for strong arms support soon if the market gives up a tad from here. Stochastic values look as if that possibility could become reality soon.
(60/30-Minute Charts: QQQ)
Smaller view on the QQQ. Trying to get jiggy once more, it was repressed on Friday by chip sector downgrades and SUNW - INTC reaction of collective market yawns to the CNBC-hyped conference call reports. It did form a double-bottom move just above the recent gap without filling said window. No big bounce up from there either as the index remains in limbo.
My guess looking at this picture? Sideways to higher prices the next session or two but no big rallies seen in the offing. These chat lengths cannot predict beyond the next two sessions, for which we look to daily charts or better yet, wait for two days market action to unfold!
(60/30-Minute Charts: OEX)
OEX is forming the same bullish intraday patterns as well, which look to be higher prices Monday and/or Tuesday. But none of these are classic high-odds bullish reversals as oscillator/price action behavior is weak.
But isn't that what it always takes to shake out weak hands from a trend before it changes?
I expect December to finish out just like this week behaved: 20% of the time in directional movement and 80% of the time going nowhere. Other than pros who can properly manage short option positions or spreads, these are the type of markets that suck many trading accounts dry. I would guess we are closing in on the top of this recent bullish trend in the prevailing bear market but no proof of that exists to play either direction in a big way.
Lest that sound like a cop-out I'll reiterate that my guess on long-term direction is down and soon, but when & from what levels compared to tonight remain too cloudy for me to gamble precious capital. I'll stick to the tough game of short-term scalps and risk small amounts of speculative capital until clarity returns in the future. My fair warning to you is consider capital defense a critical thing right now. If the bull was born it will last for years, so what's the big rush. If this is what many suspect to be another false start we'll endure for years to come, the fortune saved may be your own!
Best Trading Wishes,