Although I remain solidly of bullish bent, as a technician I have to always keep my ear to the ground examining the chart action that speaks to my expectations as well as against them. Ever since I began writing for Minyanville in late May I have attempted to demonstrate how the markets typically leave clues on the charts with respect to what they wish to do next and that, if you pay attention, you have an odds-on advantage over anyone who doesn’t.
Many times those clues show up in general markets' response to good or bad market-affecting news. There are times, however, when critical clues are provided about the general market but are predicated upon individual companies -- big and important companies. In the past week there have been two of these events and both are telling us something.
Last Wednesday, FedEx
(FDX) shocked Wall Street by lowering estimates. The immediate reaction was to sell off the transportation sector and the stock. The resulting FedEx daily chart wasn’t a pretty picture, but if you pulled the chart back to the intermediate term time frame, you are hard pressed to even identify the event on that time frame. In fact, an objective measure of the selling pressure shows that the demand at the lower price levels was comparatively greater than the supply, which is evidenced by the anchor bars that were tested. In this case, the market provided the test and the bulls won -- hands down.
Fast forward to Friday where a bad employment number and an Intel
(INTC) earnings warning appeared ready to shake the markets lower only to fail. The market worked higher off the bad numbers coupled with the continued momentum from the European Central Bank's bond purchase program, but Intel didn’t fare nearly as well losing over a $1 on the day. The same was true of Monday with another buck being carved off the price. Bad news, you would think, but if you pull back the chart on Intel to consider it from the intermediate term perspective, it appears highly probable that the stock will find support soon around the $22.50 area. That is the confluence of the ABCD down projection on the weekly chart as well as the meat of anchored support zone.
How Intel behaves at that level and on the subsequent bounce will tell us a lot about the general market, but if I leave that aside and just examine how supply and demand are currently unfolding, the current test says the bulls will win this battle as well. Of course it has to play out to completion since volume and/or price could surprise but, for now, the current take is that anchored support will hold and Intel will not bring down the key chips sector as a result.
Folks, since joining up with Minyanville and beginning to share my thoughts I have focused on my neoclassical approach to reading the markets. Starting with the article Trading Tip: Why You Should Ignore Patterns and Focus on Levels
where the anchored resistance zone forced me to flip back to the short side for a trade after the first bounce off the May bottom, to the What the QQQ Reveals About the State of the Markets
article where I laid out the parameters of how the market would likely tell us to get long again, my focus has been centered on tests at key supply and demand areas as they appear on the chart. Neoclassical TA is all about supply and demand as told through the charts. It’s not always right, for nothing is, but for those of you have read my scribblings so far, it has a respectable record.
No positions in stocks mentioned.