The past few days have seen the averages try to climb higher but up on tiny candlesticks. Getting tougher and tougher to make the move up as we get closer and closer to those trend lines of resistance, especially the difficult trend line of resistance at approximately 1320 on the S&P 500. We got as high as 1297 on Thursday. A few things were getting clearer as the market advance was moving along. First of all, the MACD’s on all the major index charts on those dailies were refusing to advance very much if at all. They were flat and simply not impulsive in nature. When you’re within 2% of massive resistance, you want to see, at the very least, strong moving momentum oscillators, and this was not happening at the end of the move up. Add in that the daily charts for the major indexes were nearing 70 RSI, averaging 65 coming into today’s action. This tells us that if we do get to 1320, the RSI’s will be at 70, and thus no chance for a breakout at that point.
Friday we saw what can happen when those things come together. As noted, we had gotten to 1297 Thursday, but that’s not clean, as you know, and now we’re well below, so we still have to deal with 1292 before we can think longer-term trend line resistance at 1320. Friday we got an attempt at a downside reversal but tailed back up some late day. Nothing bad happened to the bulls other than they now have a gap to deal with, and although that’s not necessarily easy to get through, they haven’t had much trouble lately taking care of business like that. A pain for sure but not impossible to work through over time. While we put on a SPY hedge late week given the proximity of 1300-30 resistance, we continue to play objective setups when appropriate.
The “Fed” was seen Friday riding in on his white horse in full gear. Weapon in hand as well. (“I am the Fed, ruler of the land and all will be fine as long as I’m around was his calling.”) Bernanke announced Friday that he is ready in a moment’s notice to get the next quantatative easing program rocking forth. QE3, if you will. He even said it as such. That he will not let the bad news out of Europe destory our system financially for if it did, he would be known as the Fed that let his people down. Not on his watch, baby! So … turn on the spigot. More printed dollars to save those that will go bad once Europe falls deeper into the mess they can’t seem to get away from. Bernanke doesn’t care about the long term. He wants to be done with his term and have no financial collapse under his watch, even if it needs to happen and is best for the future of this country. More debt does not equal a happy ending. Bernanke knows it but really doesn’t care, sadly. So be prepared folks. It’s coming to a theatre soon. TURN ON THE MACHINE!!!!!!!!
JP Morgan (JPM) got the earnings season going Friday. They reported their earning’s pre-market, and the results weren’t very exciting. The stock gapped down on the news. With the financial sector flashing a 70 RSI on the daily chart, it’s no wonder the sector took a hit. It’s so interesting watching this sector do reasonably well lately. You know the risk in these plays is very high, even with the Fed promising no harm to them. Sometimes you can’t stop what you want to, even if you’re the leader of the land. Hard to understand the rise in these stocks, but it’s not for us to question, only to respond to what we see. It’s a big world out there in stock land — thus, it’s no excuse putting yourself out there and taking unnecessary risks unless the risk/reward is very well defined. The risk is high and the reward high, but the ultimate risk is just too far out there for me to want to get involved with. If there was ever a real solution, and not a bail out, then these stocks would go into orbit. I would totally understand that and I would get involved, but until there’s a real solution for the entire world, and it won’t be easy to come by, it’s best if you mostly, if not completely, avoid this area of the stock market. Over the coming weeks we’ll get the rest of the big banks to report their earnings and it’ll be very interesting to see how Wall Street spins them, but there remains some risk in many of these issues.
By the time this weekend is over, all of Europe may be downgraderd by just about everyone as time erodes the chances for a cure to the ills of the euro zone. Great minds are talking, but these great minds have yet to find a solution that makes Wall Street happy. No shock considering the depths of the problems that exist throughout all of Europe, except Germany, which took the most measures against inappropriate behavior. To that Merkel deserves a lifetime of leadership because the rest of the world just couldn’t help themselves to the free stuff at the candy store. Only she knew to heed the adage that if it looks too good, it probably isn’t. She was right. World banks continue to try and find a solution but even the latest massive influx of cash from around the world, including places such as Canada and Great Britain, haven’t helped bring about the necessary cure. A band-aid is all these cash in-flows are all about. Then time moves on, cash gets used, and still no solution. Can’t cure a split skull with a butterfly stitch. Time is running out and you can feel it. You only have to look as far as our Fed, who made the QE3 speech Friday, to know that things are getting precariously close to a bad ending. You don’t talk up more debt unless your back is against the wall.
1267 is strong support down to 1235 on the S&P 500. 1292 is big resistance and 1320 is the wall of China. If we do continue higher into the 1320-30 region our daily charts will be near the 70 RSI mark and need a breather before making another attempt higher. A blast through and a successful back test will do the trick, but for now 1320 seems awfully elusive. We can only take this one day at a time, one step at a time, for now and let the message be told in how things set up on the charts. It still looks fine technically. No damage at all. The gap is a headache from today but it can surely be overcome with the right news, or even without the right news. Slow and easy for now is the only way. Earnings season is upon us — thus, it will be interesting to see not only how key sectors/bellweather stocks report but what they see in their respective outlooks.
Enjoy the three-day weekend!
Peace,
Jack
