As The Market Turns
From a Go-Go's song reminiscent of the 1980's, it's just another manic Monday with all the positive action last week met with selling right from the start today. Up, down, up, down - is there anyone that does not believe this market is rangebound? I could just skip the news and go straight to the charts for more evidence of that, and will do just that in a minute. But Fundamentals Guy cannot resist taking a vicious poke first at some of the news that many believe caused today's negative slide. Hogwash. It did not cause today's slide, but it does have implications for the economy and will affect investors' psychology as portrayed in this giant soap opera we call "The Market".
Will Gold continue to rise? Did OPEC lose its last hand to Russia as it begins to lose dominance in the world oil market? Are we really in danger of more terrorist attacks? Are these three premises merely coincidence? Stay tuned for the exciting conclusion, as it unfolds over the days, weeks, months and years ahead!
As for Gold, the shiny, yellow metal reached its highest price level in 22 mos. finishing today at $316. This is the first time that I can recall where the commercial shorts are actually losing theirs while betting that gold prices will fall. $314 had been a previous level of resistance and a previous level of support back in 1998. Once through $314, this has got to cause some shorts to rethink their position and perhaps cover. With gold reaching a series of higher lows and higher highs since January, an uptrend has become pretty clear, which is well-noted in a stochastic that has failed to reach oversold since January. Gold is clearly on a bull run but may need a few weeks to get its footing at these new levels. While I'm not interested in buying every ounce in sight, Fundamentals Guy is moving out of financial assets into hard assets, which includes gold. I'm inclined to spend some money on this stuff as an insurance policy against a sagging IRA (not a trade) every time the price dips under $314.
I'm not too worried about the world becoming a more stable place to live. I don't think that's likely as long as fanatics, more fervent than ever, have publicly stated they want to kill me, and all of us engaged in the western way of life, as a badge of honor. Nobody knows that outcome, but I will not die today, and will likely still need grocery money even if dollars become less valuable and/or spendable.
More on that lack of stability thing. . .anyone catch Dick Cheney on Press the Meat on Sunday when he said, "A future attack against the United States is almost certain"? The FBI also warns that suicide bombers performing homicide bombings in the U.S are "inevitable". Not that it would surprise anyone with feet firmly planted on Earth, but these are credible people with the best means to know of which they speak. Our fear of that unknown will tend to cause equity sellers to appear, hence negative price action.
It's also worth noting that OPEC is losing its grip on oil prices. Iraq's proposed embargo of oil to the west failed, and now OPEC is trying every trick in the book to keep Russia from undercutting it. Too late. Russia is all too happy to supply all the oil the west wants for hard cash, thus ending the stranglehold OPEC once had.
But watch out. Hell hath no fury like an OPEC nation losing its cash cow. I might point out too at the risk of much hate mail that most OPEC nations have little other resources than oil to trade. These are not nations that embrace capitalism, but instead conspire to gouge money. If they can no longer gouge it, they will likely resort to the barrel of a gun to preserve it. Ever hear of Saddam Hussein? It's tough to keep good trade partners using coercion and all the more reason to believe that destabilization in OPEC nations will continue to rise. Hmmm - another case for gold (that or buying Russian oil stocks, which also looks interesting to me).
But back to our own markets. Merrill opined that we should sell tech stocks into strength. Yet Salomon sees INTC benefiting from a positive pricing cycle born of higher PC demand (really???) and expects no price cuts in the coming five months (Again, really??? Ever hear or Moore's law that doubles chip speed and halves price every 18 months? Maybe the "halving price" law has been repealed at Solly.) Merrill gets my vote on this one.
Finally, economic news saw our list of leading economic indicators decline by 0.4% rather than the expected decline of 0.2%. Cause for concern? In the grand scope of things, probably not, as this too is not a surprise, but merely a symptom of worldwide over- production capacity. China figures HUGE in that, but I have to save it for another column. Meanwhile, recovery is slow and fleeting here at home. Don't look for that to end anytime soon despite Washington's attempts to convince us otherwise. We should be more concerned about the dollar's slide against other currencies, which could be put a big damper on the budding "recovery".
All that said, the charts fly in the face of the negative goings on.
Dow Industrial chart - INDU (weekly/daily/60):
Our first manic market indicator is the Dow. Weekly chart is still bullish with stochastic divergence, and moving up. The 60- min chart is likewise slightly bullish having found support at 10,225 with its stochastic just turning up form oversold. Was buying calls at the close the right play? I can't say, but stochastics suggest that's the case for a risk capital on a scalp. Still, not a very high odds play.
On the other hand, the daily chart shows the 60-min chart gap that is ripe for the filling. Also, the daily stochastic has just rolled over with plenty of room to fall to say 10,100 for starters. But the bullish trending weekly chart should have the daily finding a higher low once it cycles to oversold. Scalp calls if you must then consider puts on any bounce until the daily stochastic reaches oversold.
NASDAQ chart - COMPX (weekly/daily/60):
Similar stochastic story here, only more pronounced. The daily is definitely bearish with gap just begging to be filled in. Come to think of it, I'd pass on scalping calls on the 60-min chart. While stochastics have turned up, price action is failing to keep up. Once the 60 rolls, the candles cannot likely hold altitude. This has all the makings of a very nice put play.
S&P 500 chart - SPX (weekly/daily/60):
Ditto on the granddaddy, but no quite as bearish. Still, there is a big gap to fill to perhaps 1078 for starters and a daily stochastic that is signaling potential reversal to oversold. Perhaps scalping calls is possible for the nimble, but no for my money. A 60-min chart break downward from overbought (wait 'til it gets there) coupled with a break under 1088 would get me in puts.
VIX? VIXN? There is no fear. 21 and 42 roughly, respectively, which tells us implied volatility is low and investor's belief in severe price moves in either direction is zilch. Well, that's what we'd expect in a rangebound market. Also worth noting is that while the A/D line was greatly negative and volume indicators gave no quarter to those wanting to buy calls, shear trade volume was pretty low and thus not the stuff huge selloffs are made of.
For tomorrow, no economic news to upset the stomach. I'll be watching the 60-min charts for a stochastic to cycle up with a continuation of flat price action. On the rollover, hopefully, as the price begins breaking down to fill the gap, that's when I'd be looking at puts. The daily chart should be pointing straight south by them across all major indexes, especially the NASDAQ.
See you at the bell.