Where are the Upside Surprises?
Tuning in for a few snippets on CNBC, all I heard before turning off the tube was that volumes were low (duh) and there were surprisingly few earnings warnings. Two things come to mind.
First, if the bulls are on the road to recovery for a great second half, why are companies not coming forth with improved earnings outlooks that, to date, have already been whittled to the bone? If the economy is on the upswing, aren't companies supposed to be talking about expected profits? Well, since by some people's platitudes the stock market leads the economy, maybe we should be asking what the last five days of trading are saying about future profits. If we did, the resounding answer might be, "down" (because the market leads the economy, don'cha know?).
Second, while I'm not one to read much into low volume no matter what the market's direction, I think the low volume is more a conveyance of investors' lack of interest in the markets. Low volume is certainly not a resounding vote of confidence for future equity prices. Some investors are scared to plunk their money down rightly figuring it will vaporize as the bear market erodes returns into the negative column. No wonder they choose to stay in cash.
Sure, this is warnings season and we are all hunkered down for it waiting for the Big One to hit - GM, IBM, CSCO, MSFT, DD, whatever. Just give us the bad news so we can hammer stocks in a big one-day loss and get on with our planned bull market! "Jeepers, we've got a bubble to re-inflate around here with a little help from Al Greenspan! Interest rates are lower than they've ever been, economic reports have hit bottom, housing is booming, and business is recovering. Heck, we never had a recession. This is a bull market." Can you just picture the perma-bulls as guests on the Hollywood Squares with the investor contestants saying, "I disagree, Tom."? Tom replies, "Investor's are correct. "X" gets the "O" on the Point-and-Figure chart!"
It isn't going to happen that way. Bear markets are loaded with patience and gradually wear the diehard bulls down. While there are mini-bulls and mini-bears, the undeniable trend is that the equity markets are engaged in a primary bear market. Get use to it; play bearish as an investor - get defensive; win! Of course that applies to the long-term investors. Traders will make money in either direction on intraday moves. Bulls did extremely well between October and January, and then again in March. Bears did well in February and it look like it's their turn again, perhaps for a long streak this time around.
How can I be so sure? I'm never sure, but here's what I see in the charts.
Dow Industrials - INDU (weekly/daily/60):
Start with decidedly bearish oscillator patterns. Add in some broken support just under 10,400. then note the next point of support somewhere around the 62% retracement bracket at 10,108, 50-dma of 10,082, and a lower Bollinger band in the same arena. The 60-min chart foretold the possible breakdown from the neutral wedge formation. They don't always break down, but they do more often than not. Bulls should take heart. The 60-min stochastic is now buried in oversold and looking ripe for a bounce - not unlikely at all given that every Dow stock was in the red today. Contrarians will note the heavy bearish leaning and get ready for a bullish swing trade using the 30/10/5 charts.
NASDAQ - COMPX (weekly/daily/60):
For the NASDAQ, here's another neutral wedge under formation - this time on the weekly chart. Remember this formation results in breakdown more often than not. With stochastics turning bearish prior to even entering overbought, my best guess is that the NAZ will remain under pressure for months to come. The daily candles have not been able to get over and hold above their 200-dma, unlike their Dow and SPX brethren. Immediate daily stochastic pattern is mixed but looking weak. Like the Dow though, an intraday bullish rebound is possible given the oversold stochastics that appear ready to bounce.
S&P 500 - SPX (weekly/daily/60):
And for the granddaddy of them all, the SPX, it has been unable to break much above 1178. Weekly stochastics have reversed to bearish after topping out two weeks ago. Daily stochastics too are bearish, but the 60-min may be offering a potential bullish swing trade soon thanks to the oversold stochastic begging for upturn. More to the point, the daily candles broke down under the 200-dma today, a mark well-noticed by technical traders. But the 50% retracement of 1129 and the 50-dma of 1127 loom near and may act as support for a bullish daily chart reversal. If those numbers are broken, look for more downside action to 1108 as the next area of support.
VIX - excepting today, it has been falling steadily over the last month and now rests at 20.48. Yet even at that number, investors are not jumpy yet nor are they predicting any major change in direction. If we used only the VIX to tell us market direction, we would have to conclude there are still a bunch of bulls out there not yet sufficiently scared enough to goose the volatility premiums.
So what for tomorrow? Near-term signals point to possible entries for bullish day or swing trades. After all, stochastics are oversold across the major indexes in the 60-min time frame. Yet the bigger daily and weekly trends remain down, which favors the bears. My best guess says that market work their way down in the weeks ahead. But for tomorrow, we could see a minor bounce that might earn us a few points on the bullish side.
Today's slide into the close further tells us that the downside may continue into the first half hour of trading tomorrow, then perhaps the technical bounce. I personally will be watching chart signals across major indexes for candle support and stochastic reversal for quick bullish trades. But there is less risk in waiting perhaps a few hours for the downside to resume.
Of course, anemic volume makes the crystal ball a bunch more cloudy. While upward moves are tradable, I would not be long except on a daytrading basis.
See you at the bell.