Nothing terrible, and it may not be too much more, although more would be a good thing for this market so as to unwind things more deeply on the daily charts. When markets start behaving more bullish, it doesn’t just fall apart from overbought. It’s a slow process to unwind things back down some. Bulls look to buy up any weakness, and bears who are stuck short, look to buy back those short plays on any weakness. A nice move down today, but it wasn’t selling across the board as the Nasdaq maintained a bid as some good earnings from KLA-Tencor Corporation (KLAC), a leading semiconductor stock, gave the technology stocks a boost better than that of the rest of the market. We saw the Dow and S&P 500 go a few points below the 70 RSI level with the Dow actually getting to near 60 intraday. A nice rapid unwinding. The Nasdaq is still hanging at 70, unfortunately, and will need to unwind far more deeply at some point in time, although it’s impossible to know when that will being in earnest. The market still finding a way to see strength even at overbought. A common theme for now.
There is nothing bearish about some selling, but if we do sell for a while, you’ll hear more and more bears get involved. That’s never a bad thing for this market if you’re bullish. With the bull-bear spread at 21%, there’s no worries about too much bullishness now. Let the selling continue for a while is what I’m hoping for, but it wouldn’t shock me if we made another attempt higher first before more sustainable selling kicks in from multiple tests of 70 RSI’s on the daily index charts. For now, this is totally normal behavior with nothing bearish taking place for now.
The commodity stocks continue to act very well overall with selling episodes along the way, of course. Gold is back in vogue. Good action in SPDR Gold Shares (GLD) and iShares Silver Trust (SLV), if you like silver. Starting to stay more overbought, and at the last low, some accumulation in gold. Looks like that trade is now a buy weakness situation once again. The financial stocks are also looking good for the time being. Buying on weakness is taking place with the index chart staying nicely over the bottom moving average. You don’t want to see captured moving averages from underneath, then get lost from the top. That doesn’t seem to be a problem for now. The Goldman Sachs Group, Inc. (GS) is leading the way, with many others acting well such as Bank of America Corporation (BAC), and JPMorgan Chase & Co. (JPM). The market will need the financial stocks over time if it wants to make a more sustainable longer-term breakout to the up side. There are subtle hints that this process is under way, but I won’t feel good about anything, until the official breakout level of 1325 S&P 500 gets blown out and cleared forcefully. The bulls, for now, can feel good about the financials and very good about the commodity world.
There is a major negative about this week. Most of the economic reports came in worse than expected. Everything from housing starts to consumer confidence to the GSP, which came in 0.4 below expectations. Lastly, a big move up in jobless claims of nearly twenty-five thousand. It seems most of the better reports are somewhat of an illusion as there’s nothing consistent. A rise of that many claims is not a good thing, especially if it becomes a repeat next week. We know things aren’t as good as we’re told but this was really bad to see. Also, a huge drop in housing starts out of nowhere. You wonder how these reports get so whipsawed. Bottom line is this was not a very good week for the bullish fundamental case that our economy is improving all that much.
Fed Bernanke did something this week that tells us things really aren’t very good with our economy. He extended the basically zero interest rates out eighteen months at a minimum. Through 2014, to be exact, when he originally had it through June 2013. Why such a move of fear? Because he clearly understands how vulnerable our economy truly is, not only from our own debt problems, but from the potential horror story that could come out of Europe at any time. He’s scared. We all know that now. We know that on a much deeper level than we had just a week ago. To allow interest rates to remain near zero for at least three more years really tells you what he thinks about the world’s economies. Not very much, clearly. This makes us vulnerable folks, so we need to approach the market from this position. It doesn’t mean we can’t have a juncture coming up in time where we get far more aggressive, but you have to keep the feds’ actions in mind at all times. An act of sheer fear and concern.
Long-term support is at 1292 down to 1267. As long as 1267 holds bigger picture, things are more on the bullish side of the coin. If we lose 1267, because of events overseas, then the bullish case takes a huge hit. 1325 still the big breakout level. One day at a time with loads of whipsaw to come.
Peace,
Jack
