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Five Things: The Market's Dog Days of Summer

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These days it's hard to find anyone who believes the market's "sucker" rally is anything more than a wheezing bull.

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1) Dog Days of Summer? Not for the Market

We are in deep in the final throes of August, the dog days of summer they call it, though here in New York it's not forecast to crack above 80 degrees this week. That may explain why the last remaining human vestiges of finance sector payrolls are stumbling around the city like hungover sailors who just woke up in an alley; no one is quite sure where they're supposed to be, let alone how they got here.

It's summer in New York City, and for most of the past 25 years the only people left here actually doing work in August were accomplishing it with a vacuum cleaner or a squeegee, not Excel or a Bloomberg terminal. Confusion has set in; Excel is the new squeegee. When the worm turns, it does so viciously and with little warning. Perhaps that's also why the squeegee users of Wall Street remain so pessimistic about the end of summer. These days it's hard to find anyone who believes the market's "sucker" rally is anything more than a wheezing bull market poseur on the verge of the most unceremonial exposure.

With that in mind, let's see where we are with the DeMark indicators as we leave August and head into September.


2) DeMark Indicator Update

As we approach Labor Day, the "unofficial end of summer," let's take a quick look at where we stand with my interpretation of various DeMark indicators.

S&P 500, basis the futures contract.

Daily:
A TD Sequential Countdown sell signal recorded August 21. We're still within the 12-bar subsequent period that a response is expected, but the weekly time frame remains dominant.

So, let's look at the weekly chart.

Weekly:
A TD Combo Countdown sell signal recorded last week.
But, for a TD Sequential Countdown we're only on bar 10 of a potential 13, and remember those countdown bars need not be consecutive.

Meanwhile, TD Sell Setup will begin bar 8 this week, but we still need a high this week (or next) above last week's to perfect a potential sell setup. Remember, a sell setup is defined as 9 consecutive price bars with a close above the close four price bars earlier. A perfected sell setup needs the high of either price bar 8 (this week's) or 9 (next week's) to exceed the high of price bar 6 or 7 (whichever is higher).

Bottom Line: The TDST weekly Up level that was broken in a qualified manner July 17 increased the probabilities we get the full TD Sequential Countdown, and so that's what we are waiting for. Meanwhile, we have an open window of at least two more weeks where the weekly time frame is dominant, pending a completed TD Sell Setup and, beyond two weeks, a potential TD Sequential Countdown sell signal. Really, it's like picking up dimes in front of a bulldozer at this point, at least until/if we see the TD Absolute Retracement Up levels broken in a qualified manner. The fourth quarter continues to shape up to be a potentially decisive period in terms of longer-term technical importance.

Remember, too, the TD Absolute Retracement Up level for the S&P 500 is 1025.07. It has not yet been broken in qualified manner. So we wait.


3) Emerging Markets Update

I've been overweight emerging markets but have been taking off emerging markets exposure and finished doing so today. Eventually, I want to concentrate on overweighting China. The concern is that there is a bubble in Chinese stocks. And I agree, there is. After all, what if I told you I expect Chinese stocks could drop by 50% or more? That's quite a bubble.

But check out the daily chart of the Shanghai Composite Index through the lens of a number of DeMark indicators. When I look at the Shanghai Composite Index on longer-term time frames, a different picture emerges.

The monthly chart shows a qualified break of the TDST Up Level at 1606 in August 2006. That resulted in a full TD Sequential Countdown Sell Signal that recorded in November 2007, at nearly the peak.
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No positions in stocks mentioned.

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