A Little Perspective
Despite this week's big surge, the majority of stocks are waterlogged.
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Sun is shinin' in the sky
There ain't a cloud in sight
It's stopped rainin'
Everybody's in a play
And don't you know
It's a beautiful new day.
- Mr. Blue Sky (ELO)
When I had nothing to lose,
I had everything.
When I stopped being who I am,
I found myself.
- Paulo Coelho (Eleven Minutes)
The question of questions: Has the market made a successful test of the summer lows?
Has the market stopped and reversed from the magic 10% correction level once again? Is this a time to look to buy dips or is the proper stance to look to sell rallies?
The S&P has now traced out a potentially bearish minus one, plus two sell set-up. This occurs when the three day chart turns down and then you get two consecutive higher highs. This set-up has occurred from the level of the 20 dma.
In the bull market pullbacks at/towards the 20 dma typically defined support and another buy point. The opposite is typically true in downtrends. This is why moves to the 20 day moving average are referred to as the Holy Grail. Of course, the market is not a fine Swiss watch and often the price action will marginally overshoot or undercut the 20 dma.
At the same time the S&P remains firmly below its overhead 200 dma, which is one way technicians define bull and bear trends. The S&P also remains below the mid-point, the fulcrum of the October to November decline, which is approximately our old friend 1490. This is where the monthly swing chat turned down. Will the S&P stab above its 200 dma tagging 1490ish even in a downtrend?
The bulls would love to see a strong Friday for the weekly close and are going to use Bernanke's speech last night as a trigger. But it is month end there is the possibility that someone will be forced to liquidate remains.
Will the end of the month be to the tape as the last hour of many sessions has been?
Will the last month of the year provide the same kind of volatility that the last hour of many sessions over recent weeks has held?
Although I continue to think that what we are seeing is a rally in a bear market, I have been focusing on the first week of December as a turning point. I thought no short term low would be seen at the very least until after December 2nd or so but again the market is not a fine Swiss watch. So, we will have to be coldly analytical as to the price behavior next week. Is i possible that December 2nd plus or minus will define a high instead of a low? Possibly. Friday's close will be a tell on that.
The fact of the matter is that while the indices can be manipulated with the big cap stocks, less than 30% of stocks are above their 50 day moving averages. Despite this week's big surge, the majority of stocks are waterlogged.
The fact of the matter is that in my view, whatever the Fed does, it won't help a tapped out consumer. For those who think lower interest rates are a panacea and that more cheap air is the solution to bubbles gone bad, I have one word: Japan.
If the market is in the process of forming a huge top and this is the message of the wild and erratic swings then what we are seeing is a reflex rally after the sign of the bear. If a new leg down commences this year below the March, August and November lows it will carve out an outside down quarter and issue a very big picture Rule of 4 Breakdown on a break of those triple bottoms.
Just a little perspective as the Boom Boom Parade gets into gear this morning.
Heads up for a spike first hour high if a first pullback sees prices continue to erode.
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