here are Jack's thoughts on the market for those interested :-)
Testing the 20's..50's On Deck....
When the Sp made its measurement at 1220 I had warned that for a while, likely several weeks to possibly a couple of months, the market would struggle with appreciable upside action. The measurement, once made, is usually reason alone for a long rest with more down side action than up side action. However, when you add in massively overbought daily charts you have to figure there's enough reason to now bring the markets lower for a while in order to rest. To unwind those massively overbought oscillators. It's healthy and quite necessary. You can only get so overbought for so long before the rubber band snaps and brings things back down. Before the selling is over it would be great to see all stochastic's on the daily index charts get to oversold levels, meaning 20 or lower. It would be great to see the rsi's get to 50 and hopefully lower. It would also be great to see the Macd's get to the zero line or lower. The more oversold the better. This is how the market can then try to go appreciably higher once again. Any upside from here would be contained to small gains simply because we haven't gotten those oscillators unwound enough. The more we sell or keep the trend lower for a while, the better it'll be for the market bigger picture. If you want higher markets then root for this market to struggle for a while longer. It should.
Today we saw the type of market associated with a market ready to move lower or a the very least, struggle with much upside action. It gapped up higher due to the sixty minute charts being oversold. Some quite a bit so. The market tried numerous times to make a big run up. It was moving up off the gap up open and this is normally associated with a market ready to go higher and higher. Not to be this time however. The market ran out of steam pretty quickly and then spent the rest of the day slowly giving up the gains with the Nas actually going red at the end of the day, basically closing on its lows. The theme here being early morning strength is being sold off as the day moves along and then we eventually close at or very near the lows. This is a change of character from what we've been seeing the past several months. Good news not being bought up such as the good retail sales report this morning pre market. Late selling is a clear change of how things have been going. This tells us that we're going to struggle for some time to come. Nothing necessarily horrific but definitely not the action that supports higher prices overall. rather, it tells us we should drift lower over the next few weeks.
It's very normal, once markets have topped for the reasons I've discussed in this letter earlier on, for all the major indexes to back test their 50 day exponential moving averages. This allows for the unwinding we're all looking for. The first part of this process is to challenge those 20 day exponential moving averages. You bounce around this level for some days and but eventually break below on a closing basis and test down to those 50 day exponential moving averages or at least very close to it. Sometimes you fall a little short of getting there. Sometimes you test perfectly and then there are other times when you are mentally tested when the 50's actually get breached to the down side. That's the more emotional of the scenarios. Hard to say which will play out but none of that really matters in the end. Just be aware that some form of this test is likely to happen in the days and weeks ahead.
part 2 next post
and Yin from Market Edge for those intersted in her comments :-)
Change of Character?
After last week's pullback, stocks spent the first day of the new week trying to find a direction today. October retail sales data was decent as it was better than expected overall but only met the estimate on the ex-auto basis. The Monday M&A (CAT acquiring BUCY and EMC buying ISLN) sent the major indexes higher at the open. The DJIA almost reclaimed all of its loss from last Friday by early afternoon, but profit taking set in late in the day. The financials, which led the advancers all day, lost some momentum in the afternoon while the big cap techs such as AMZN and GOOG lagged all day. The materials shares continued their pullback from last Friday as the dollar strengthened. At the end of the day, the three major indexes finished mixed near their lows. The DJIA held on to a 9.39 point (+0.08%) gain to finish at 11201.97. The S&P 500 lost 1.46 points (-0.12%) to finish below 1200 at 1197.75 while the NASDAQ gave up 4.39 points (-0.17%) to 2513.82.
Breadth went from decisively positive in the morning to marginally negative at the close. Decliners edged advancers by a 15 to 14 ratio on the NYSE but advancers outnumbered decliners by a 3 to 2 ratio on the NASDAQ. Volume was very thin. About half of the volume was on the downside on the NYSE while 55% of the volume was down on the NASDAQ. Crude oil also fell in the afternoon. The December contract settled off $0.02 at $84.86 per barrel.
Stocks had good reason to rally today on a M&A Monday but failed. It suggests a possible change of character from dip buying to ridge selling. The long term MACD of the S&P 500 turned lower last Friday. Today, we saw that happen on both the DJIA and the NASDAQ. A weakening long term MACD suggests that a near term pullback could turn into an intermediate term bearish trend. With that said, the bulls have not totally lost their grip on the market yet as the major indexes stayed above their lows from last week. The financials have done better lately which could provide some support for the overall market. In addition, the light volume indicates that short sellers are still a little scared to put on big bets.
by Yin Lin, CFA
The 20 day exponential moving average on the Sp, Dow and Nas are at 1196, 11,204 and 2515. On the close today, the Dow breached by a few points which is truly meaningless and the Nas closed below by two points which also is non confirming. A close one percent below is more indicative of a true breach and loss of these levels but we have a start. There could be a small bounce off these levels but sooner or later a test down to the 50's is likely and those levels are at 1168 on the Sp, 2436 on the Nas and 10,986 on the Dow. The Nas is the strongest of the indexes with the Sp a close second. The Dow is the weakest by far. When the market is ready for more upside down the road, the Nas should lead once again.
The market simply needs time folks. Let's not give away hard earned gains by over playing our hand here. Let's not get aggressive on either side of the trade for now. It's time to be playing much lighter than we have over the past several months. Just go slow for now and allow things to set up all over again down the road. Some weeks from now. Just go slow and easy here.