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In the Din of the Market, Price Charts and Simple Technical Tools Are the Best Guides

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If Twitter streams were able to produce a market weather forecast, it would be something along the lines of "Positively Sunny With a Chance of Torrential Downpour." Meaningless.

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If you are trying to determine the current market disposition through popular financial media, you are hearing a great deal of contradiction. For instance, if Twitter streams were able to produce a market weather forecast, it would be something along the lines of "Positively Sunny With a Chance of Torrential Downpour." The voices coming from the news and opinion feeds are definitely not in synchronized harmony, and the volume of one over the other at any given time does not equate to veracity.

Sunny = Market Price Highs

Let's attempt an assessment of the current state of the longer term equity market. First, the good news charts. The US market indexes are at recent highs and not far off the 2007 peak prices. In addition, market breadth indicators are in agreement with the stock market enthusiasm. So far, so good.



Divergence = Clouds on the Horizon

In spite of the impressive market advances, we see numerous deviations and disagreement in other market measures, economic reports, and social news. Here's a chart of the transports and semiconductor sector prices along with bond interest rates and copper prices that displays a differing opinion from the market's excitement. In normal circumstances, we'd have to be alarmed by this collection of recessionary foreshadowing, but as we'll discuss in a minute, these are extraordinary times.



We can also look to broader economic reports and see storm clouds in the distance. August durable goods order numbers were horrendous and economic growth adjusted for inflation is anemic at 1.3%. If those are the beginning of an ominous downtrend, then personal income and corporate earnings are going to take a hit as well and ultimately cause market participants to duck for cover. Yet another check box gets marked for severe correction possibility.
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