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Recent Technical Action Offers No Good News for Market Participants


The technical damage to some of the major indices has already been done and will likely take an extended time to repair.

Veterans' Day: An occasion to celebrate our troops and all they have done in providing the continued ability to live in this great country – "The Land of the Free." We thank you.

Every year around this time, as Halloween passes, daylight savings ensues, Veterans' Day arrives, and Christmas commercials begin to appear on TV, the thought of the year's happenings can't help but fill our minds. Has it been productive? Have we done all we could do and been all we could be? For me personally, it also poses the question, where has the year gone? Isn't it a fact the perception of time is exponentially shortened based on one's age? If not, it should be. It was only yesterday my son was five and just starting school and now he is 13 and will be attending high school next year. Seriously?

Looking back offers perspective. It provides a yardstick with which to measure where you are in comparison to where you thought you'd be. This becomes extremely true for investors and portfolios due to the ease of ascertaining value. For the most part it provides perspective on the risk associated with one's returns.

On May 2, 2011, a typical spring Monday nearly 19 months ago, the S&P 500 Index (INDEXSP:.INX) traded at 1,370 and was in the midst of what our firm termed "The 2011 Channel of Indecision." On Friday, after a year and a half of tumultuous – 20%-plus – volatility, the SPX closed less than 1% higher at 1,380. This is somewhat disheartening if I do say so myself.

Click to enlarge

Over the past month our editorials have been pontificating on the 1,400 support level and its importance for entering year-end. Post-election trading (given the technical break) has altered our original outlook of a 1,550 year-end run, to an increased risk and downward volatility stance. Currently the SPX is the only major index which is still holding onto its 200-DMA, but just barely.

In our opinion this is the last technical support left before we will see a retest of this past summer's lows (~1,280 – 1,300). This technical outlook is bolstered by the fact there are two other trends in play which coincide with its 200-DMA. First is a slightly downward sloping short-term "Floors & Ceiling" support from the March high. The second is an unconfirmed upward sloping trend off the October 2011 lows. (This remains unconfirmed until supported by three retests -- this would be the third.)

Last week's technical action provides no good news for market participants in the near future, even if there is a small bounce waiting around the next corner. The technical damage for all four of the major indices, which in addition to the SPX include the Dow Jones Composite (INDEXDJX:.DJI), NYSE Composite (INDEXDJX:NYA), and Nasdaq Composite (INDEXNASDAQ:.IXIC), has already been done and will likely take an extended time to repair. Hence our message: Button up and prepare for cold winter nights.

I hope this helps and finds you well.

Editor's Note: Read more at Tesseract Asset Management.

Twitter: @TAM_News
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No positions in stocks mentioned.

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