Lateral Consolidation Continues....Testing our Key 70 Week MA's....
Market Overview:
No one and I mean no one can deny that this market has done a great job of
frustrating both bulls and bears alike. Bad news gets absorbed by the market
without any real down side action. How annoying was Thursday for bears! Horrific
numbers on the retail sales front. The market falls some only to recover
late and show gains. With gains in retail sales expected and with losses
the actual outcome, it's hard to imagine being short this report and having
to cover or even if you didn't, you had to deal with an up market in a down
report. No fun. If you're a bull, a good cpi (consumer prices) report today
was ignored and down we went. Just when it seemed we'd finally break out
and take out 2015 Nas, or that multi year down trend line, we head south
in a big way for most of today, although a nice recovery late. More on that
later. So good news drives the market down and bad news allows for upside
action. That's what happens folks when a market is trading between two key
pivot points but isn't ready or break down or break out. I'll discuss why
the market hasn't made the move in a moment. The two pivot points being the
20 day exponential moving averages underneath current price and the 2015
multi year trend line above current price. The market has continued to go
up in the face of very overbought daily charts. The shorter term charts,
particularly the 60 minute chart, whenever it gets oversold after a drop
of selling, the market continues back up, even though the daily charts never
really unwind very much. Those daily charts have stayed overbought a lot
longer than anyone would ever expect. With that being the case, and even
with good news today, the market said no go for a breakout as it chose the
route of least resistance, some very much needed selling to unwind those
oscillators that are just begging for some vacation time. To me, that's outstanding
news. Markets can't make a true breakout if the oscillators never pull back.
Breaking out at very overbought is not what any real bull wants to see take
place. Bottom line is that no damage was done today, but some much needed
oscillator unwinding has finally begun.
So what can be expected of this market from here? I can tell you that the moment a selling episode begins, the bears come flying out to tell the world the market is toast. It's done. The death knell has begun and if you're a bull, you better start your mass exodus out of stocks or you'll be very upset you didn't come a few weeks to months from now as we break down and test back to the old lows in no time at all. The question I have for the bears is, why does some selling to unwind very overbought conditions necessarily warrant the thinking of it's all over for the bulls? Of course anything can happen, but if you study what took place today, you can get a hint of what may be unfolding here. We see that the rsi's, once above 70, are now trying for the upper 50's. Stochastic's, once near 100, or the maximum number, are now basically in the mid 70's. In other words, the oscillators are no longer very overbought but it would be best, now that they've finally begun to fall, to fall back further. There have been some crosses bearish on those oscillators suggesting more down side to come, although you can expect up days un between. Unlikely to be straight down as the 60's will be oversold soon and that should provide a bounce as the process moves along. the beauty of it all is this, we are unwinding without a lot of price erosion. No one would say that today was a blood bath by any means. In addition, the critical 20 day and 50 day exponential moving averages are now racing up to meet those critical areas of support such as the 956 neck line on the SP which flashed the initial buy signal in the market. As long as the market holds above 956, and I say it will, as the oscillators unwind, this market should have yet another leg up over time. Patience will be needed for now as we likely fall further overall in the days ahead. With the market clearly on a buy signal as long as we're trading over 956 on the Sp, and with the 50 day exponential moving average now having caught up that price level, I truly believe there is more upside to come down the road and we will not break down as we correct here.
Sentiment Analysis:
Put call readings have begun to show more readings on the lower end of the
scale which shows a definite increase in the number of folks getting more
bullish. Some complacency is definitely coming in. In addition, the AAII
survey shows a 28% spread now of more bulls to bears. Not a number that has
ended bull markets, 40% usually does that, but it's getting up there and
could use some cooling off. It won't take a whole lot of selling to accomplish
that feat. Folks sour to the market the moment we have one single day of
selling as evidenced by the number of emails to that fact I saw today. The
why aren't we selling longs posts and why aren't we going short posts. Fear
and darkness are the easiest emotions for the stock market. That's from a
lack of belief in the market action based on fundamental analysis and also
due to fear from the past two bear markets from this decade. Two extremely
nasty bears that have folks seeking shelter the moment we have a bad down
day. And today wasn't even bad. Imagine if we have a 200 point down Dow day!
A little complacency has hit the market but I get the feeling that we began
to heal that cut from today's action alone.
Sector Watch:
Choppy action this week in the majority of our Sectors which somewhat mirrors
our Index Charts. After a strong advance most Indices and Sectors are now
in consolidation which thus far appears normal and healthy as some profit
taking takes place. We included a Weekly snapshot of the Oil Contract (see
our 5th chart below) which remains more or less in a base between the $60
area bottom and the $72 area topside. The Shanghai Index which has a major
impact on the Commodity area topped out 2 weeks back and looks headed for
a test of major Support in the 2700-2850 area on this pullback move. We expect
the Commodity area which was choppy this week to turn higher after both the
Shanghai and our market has finished with our current 2-3 week consolidation
move. Copper and Coal were both strong this week but took a breather late
with the market. The Semi's/SOX pulled back some this week but we are looking
for strong support to show up in the 275-280 area not too far from current
levels. The Financials continued to maintain their advance and are showing
some leadership qualities. Most Biotech/Healthcare areas pulled in some this
week.
The Week Ahead:
The up coming week should be very interesting. i would expect further attempts
to sell but I would expect the market oscillators to unwind very quickly
once that hits. There will be up days that may fool people in to buying too
heavily too soon. Only a move cleanly over 2015 should make you do that.
Back and forth would be my thinking with more of a down trending market to
get things cleanly unwound. Timing this is next to impossible. You simply
follow the bouncing technical's and they'll let us know. Most of the earnings
season is over. Don't expect much from that front. The market is basically
on its own and I think that remains a bullish scenario, short term selling
or not. Remember please that until this market loses 956 on the Sp on a closing
basis with some force, this market remains on a clear cut buy signal. Don't
get fooled or overwhelmed by some additional selling that may "feel" bad.
Keep your focus on the bigger picture.
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