Vacation From the Arbitrary
- Haruki Murakami
Well, it's been a full week since I've sat in front of the machines on my desk following ticks and flickers and punching keys. I didn't intend a full blown vacation when I left last Thursday for the beach, but fate intervened - broken radiator (more on that later) - and a three-day weekend turned into a weeklong respite. Just lucky, I guess.
First thing back from a vacation I always want to see what I've missed.
· At the end of last week the intermediate and long-term bullish percents were positive.
· Three of the six short-term indicators I follow were negative. The percent of stocks above their 10-week moving average indicators for the NYSE and Nasdaq were negative, and the Nasdaq-100 Bullish Percent was negative.
· Gold was broken, having given a sell signal at 350.
· The U.S. Dollar was involved in a counter-trend rally.
· The 10-year Treasury Yield Index (TNX) was involved in a counter-trend rally and inching closer to important resistance at 3.8% area.
· The 30-year Treasury Yield Index (TYX) was also close to important resistance in the 4.7% area.
Where are we now?
· The intermediate and long-term bullish percent remain positive.
· Two of the short-term indicators reversed to positive, leaving only the percent of stocks above their 10-week moving average on the NYSE negative. The percent of stocks on the Nasdaq above their 10-week M.A. reversed up on Monday. The Nasdaq-100 Bullish Percent reversed up yesterday.
· Gold remains broken and the August futures contract will break a double bottom at 342.
· The U.S. Dollar continues to work higher.
· The TNX has backed off the 3.8% area of resistance but has yet to reverse down on the point & figure chart.
· The TYX has reversed down from the 4.75% area - it remains to be seen whether that reversal becomes a higher bottom, or the beginning of a real retreat.
So here we are a week later and the short-term indicators have seen some movement but most everything else remains largely unchanged.
The Nasdaq-100 Bullish Percent is interesting. Going back the past couple of years, the first reversal down (when above the 70% area) for this indicator is typically a short-term trading opportunity (to the upside by buying the weakness). It's the second reversal down (from above the 70% area) that causes the most technical damage. This indicator is currently at 81% and positive.
We never know how long the indicators can remain at these extraordinarily high levels, and by all measures these levels are extraordinary. But we do know that ultimately few good things happen when people buy stocks with the intermediate and longer-term indicators all at or above 70%.
An interesting thing about being away from the subtleties of the market's minute-by-minute fluctuations is that it can lend some perspective to your market view by forcing you into a larger frame of reference. Sometimes the difference between the arbitrary and the rational gets blurred when you are looking at things through a magnifying glass. Having taken a step back from the ocean's tide, literally and figuratively, I can see the line in the sand has perhaps grown a bit more defined. But what is, is. And for now, what is, is that the majority of our technical indicators remain stubbornly positive even as the thunder of the surf grows louder.
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