Morning Cup of Jo: The BIG Day the Markets Have Been Waiting For
...the risks remain high because of uncertainty and as we all know, the markets hate uncertainty.
"Fathers are the source of the greatest human happiness. This happiness is the simplest and least costly and cannot be be purchased with money. It can only be increased by recognizing and upholding the essential values taught by them." -- Robert J. Havinghurst
- The markets tested resistance intraday on 6/21 suggesting we weren't ready to follow-through to the upside. With the slide of just over 120 points in the Dow and three of the four sisters having a bearish engulfing day (outside reversal day) on Tuesday, it looks as if the markets may finally test their most recent lows.
- Today's action is so very important on a technical perspective. Today will shape the market's view of the likely course of Fed policy going forward. In other words, is the Fed going to overdo it and push the economy into a recession?
- If the markets break the 6/14 lows, all bets are off for the bulls and this would indicate the three year trend has broken. This would indicate we have officially entered a cyclical bear market.
Before beginning, Tuttle Asset Management would like to take a moment and give our heartfelt condolences to our President, John W. DuBrule, his mother, his four brothers and sisters, and all the grandchildren for the recent loss of his Father.
Joseph P. DuBrule (1/27/1934 – 6/26/2006)
On Monday we were saddened to learn of his passing following complications post heart surgery at the age of 72. Such events are never easy and our thoughts are with his family during this unfortunate time. We invite you to join Tuttle Asset Management in making a contribution to the American Heart Association in the name of Joseph P. DuBrule.
Today's the BIG day the markets have been waiting for - (Helicopter) Ben Bernanke's 3rd FOMC meeting as Chairman. The hope for the bulls is for a much better reaction than the last, considering that was the day the "Four Sisters" topped (May 10th). In the last Jo we talked about the short-term outlook of the "Four Sisters" and how the economic data will be the catalyst that drives the market action on a daily basis (hence the reasoning behind the timely release of my firm's new service "On the Calendar.")
In our "Eye on the Ball" we posted 11,080, 1,250, 1,555 and 700 for all the ST resistance points of the "Four Sisters." These were all tested intraday on 6/21 and provided more evidence the market wasn't ready to follow-through to the upside. With the slide of just over 120 points in the Dow and three of the "Four Sisters" having a bearish engulfing day (outside reversal day) on Tuesday it looks as if the markets may finally test their most recent lows. This is why today's action is so very important from a technical perspective. Today will shape the market's view of the likely course of Fed policy going forward. In other words, is the Fed going to overdo it and push the economy into a recession?
In pure technical terms, the probabilities lie with the conjoining ST and LT support holding the line on a closing basis. If this does transpire (a test and bounce) it would greatly increase the chance of a summer rally. However, as stated many times previously, there are several metrics which drive the tape on a daily, monthly and yearly basis. The two biggest questions on Wall Street therefore are:
- Is the inflation wave coming ashore really a tsunami created from the continued and explosive GDP of China – possibly coming in at over 10% this year?
- Is there a global liquidity drain as all the world banks raise rates as fast as the FOMC?
These are questions which can only be answered with time. For now we must pay close attention to the tape for more road signs which will aid in taking the temperature of monetary commitment to the US markets.
Below we have posted the "Four Sisters" ST charts to help with the technical interpretation of what today's market close will mean in the future. You are all aware of the three year trend discussed in most of the 'Jo's.' Breaking the lows listed above in the ST support also equates to the LT support. As stated in our last 'Week in Review,' "If the markets break the 6/14 lows, all bets are off for the bulls and this would indicate the three year trend has broken and have officially entered a cyclical bear market."
Dow Jones Industrial Average
The oldest sister has shown the most resilience over the past few weeks. Breaking below the 200-DMA (10,900) would bring the next support to 10,700. This is not as technically destructive as the following "Sisters." The main reason is the flight to larger cap stocks in times of uncertainty.
The SPX however shows a bit more uncertainty. There are many overhead resistance points and the technical support is still a bad day away. If this breaks support on a closing basis – this will be the interpretation for all the bears to come out of hibernation.
The NDX is the ugliest of all sisters. It is very close to support and has already begun to give way over the last few days – mainly because of the weakness in the semiconductors.
The youngest sister is still waiting for her date to the prom. Technically the Russell looks the best of the "Sisters," but the question remains if anyone will show.
As far as today goes, the risks remain high because of uncertainty and as we all know, the markets hate uncertainty. Once the announcement comes – around 2:15 PM EST – expect a lot of whipsaw action. As far as being able to understand the markets next move on the chess board, our opinion is tomorrow will be the determining factor; not unlike the last meeting. Keep in mind we're also working toward the end of the quarter which should add to the excitement.
For the DuBrule Family:
"In the last hours of a man's life there seems to be only clouds on the horizon. But truly, through the clouds, it is the sun that shines through you see. This is the remembrance and celebration of his life and all he has done for the people who surrounded him."
Stay tuned & good luck!
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