Maria Says. . .
"This just in, investors thank Greenspan for irrational exuberance as dollar nears all-time high!" Actually, I believe her exact words were, "This market is on fire!" However, I for one, am not convinced that happy days are here again. While I note that short-covering seems to have ended as of last week and that today's buying was heavily based from institutions, I also note that the Dow has run just under 900 points in the last two weeks without benefit of improved economic conditions, or a market pullback. As long as Wall Street continues to deny actual operating expenses of corporate America, investors remain confident that stock prices will move higher. With a near-term charts heavily overbought and a VIX approaching 21, this is not the time to be backing up the truck on calls.
Still, for those awaiting their bearish wish to come true, I encourage you one and all to not come tail-to-sharpened horn with a charging bull. It will make for a fast trip to the financial emergency room where Wall Street surgeons have an uncanny ability to extract money from our collective bearish "wazoos" (tip of the hat to old E-Trade commercial). If not running from a charging bull, there's also little worse than the southern draft of a northbound cow if you happen to be chasing it.
While I still believe that in the end, this will prove to be a bullish rally within a bigger bear market, today's volume suggests the baby bull has some legs and that for us traders, "dips are buyable" so long as the charts remain bullish on a weekly/daily scale.
Jeeze, Buzz! You're such a curmudgeon! Sorry about that, I can't help but stare at ORCL's and the wireless/telco's woes, as this bunch tells me that businesses aren't putting capital spending budgets at the forefront of business investment, which makes a strong recovery seem suspect to me. I don't see many companies upgrading their rail service, adding production capacity, or increasing their communications infrastructure. I thought that was the crux of growth? How else do we continue to improve efficiencies? Call me old-fashioned, but real economic growth doesn't happen without business investment in productive means, something we already have plenty of as shown by our lowly 71% production capacity utilization.
OK, now I've made a short case for why the equity market and to a lesser extent, the economy are not likely to effervesce with new highs in the long run over a few years. But markets can remain irrational longer than I can remain solvent. Trading is a different story. And rather than bore us silly with the ins and outs of news events that supposedly drove the market, I think the charts tell a better story.
Dow Industrials - INDU (weekly/daily/60):
The picture of strength fraught with intraday peril. Weekly chart is in breakout mode over previous resistance at 10,250. The stochastic indicators are pointed upward just now entering overbought. However, note the 10,600 resistance level is going to formidable and it's nearly there.
The daily chart too, despite hitting its upper Bollinger band of resistance, has also broken out with stochastics pointed up, but entering overbought. The daily chart moving averages are the key focus. If the bulls can keep control no matter how slight, the 20-dma (red line) and the 50-dma (magenta line) should cross above the 200-dma (gray line) soon, which would have bullish chartists slobbering at their salt blocks, especially since the Dow Transport confirmed the move - trucks are filling and moving; planes are flying.
That said, expect some immediate downside giver the overbought nature of 60-min chart. Support could come as early as 10,500, or not until as little as 10,250. Keep in mind that after 800 + points, this index is due for a breather.
NASDAQ chart - COMPX (weekly/daily/60):
Wish I could say such things about the NASDAQ. Yes, the weekly chart looks like it has turned bullish as has the daily chart. However, the 50% retracement bracket from the May highs last year through the September lows is about to apply pressure, as will the declining upper Bollinger band, and 50-dma (magenta) that has crossed down over the 200-dma (gray). With the 60-min chart way over-extended too, I think it's going to bump its head pretty hard on the 1875 +/- level. While support may be found intraday at 1835, COMPX is susceptible to more damage.
S&P 500 chart - SPX (weekly/daily/60):
Somewhere in between lies the SPX, granddaddy index of them all and the one followed most by the pros (who are not always right by the way). Major resistance will be found around 1175 as shown on the weekly chart. Note however that the weekly and daily stochastics are pointed bullishly up. But here is the danger - two actually. First, SPX has hit its 200-dma (gray) and broken above its upper Bollinger band. Even that might offer some resistance going forward. Second, the daily is in complete support of a pullback to 1142 and further to 1122 should the 60-min stochastic take a fall as it is likely to do. A dip-buy here may not be a hands down winner if the daily stochastic also turns south. Maybe I'm just nervous, but the 200-dma is something technical to be reckoned with, especially following nearly 75 points of gain in the last two weeks.
VIX? 22.08, which though low, can still fall lower, say to 17 or 18 level where it was in 2000 or perhaps even 20 where it was in mid-2001. While this is on the low end and certainly has my bearish ears perked up, it by no means signals that we should buying puts right now.
So for tomorrow, let's see. . .800 + Dow points in two weeks, overbought 60-min stochastics (yet daily and weekly remain strong), and strong points of resistance about to be met, the immediate time frame has bear tracks upon it. However, with volume as strong as it was today (1.6 bln NYSE; 2.3 bln NASDAQ), we are in the midst of a bullish move of greater strength than those more recently seen. To see some follow through in the early going tomorrow would not be surprising given the close at or near the highs of the day.
While I see dips as currently buyable swing trade or day trade events, we should not assume that the bull is back forever. This is still not a time to invest, as I believe lower prices lie ahead in coming months. That's just seasonal. But bullish day trades? Have at 'er until resistance wins at a lower high or support fails at a lower low.
See you at the bell!