When markets are strong, and this market is strong folks, you watch to see how a market unwinds those overbought RSI’s. In fact, all of the critical and important oscillators, such as stochastic’s and MACD’s. If you spend a few minutes looking at the daily charts of the major indexes, you can see just how a bull market does its dirty work to calm things down. It uses time through rotation to bring down the oscillators to levels that will, in time, allow for higher prices once again. We can still sell off another 3%, or so, but that’s really nothing in the bigger scheme of things. RSI’s have gone from the low- to upper-70’s down to the lower-60’s now on average. Stochastic’s, once near 100 across the board, are now down to the upper 70’s.
MACD’s have moved down from the top of their ranges to more mid-range now. All of this taking place with very little price erosion, basically about 1%. If we got another 2% from here, the unwinding would be fabulous, although we don’t necessarily have to get that much from this point forward. It would be best, but may not take place. You look at Apple Inc. (AAPL) today, and notice it was hit for a 12$ loss. Nasdaq only down 25, however. Dow and S&P 500 barely down at all. Even when the best snap lower, the market is holding up as traders and investors chase good set-ups elsewhere. That’s a sign of a strong bull market. Just because the best is getting hammered, it doesn’t mean the market has to as well. In an eroding bull market you would see Apple get smoked along with everything else throughout the stock market day after day. This is just not taking place nor are there any signs of that happening any time other than maybe to sell off another 2% – 3% in time. For now, the unwinding continues overall, but with little price deterioration. If this continues several more weeks, or thereabouts, the market will likely then be ready for some further upside action.
The ISM non-manufacturing sector came out with its updated numbers 30-minutes into the trading day, and the numbers were quite good. The economic numbers have been more mixed lately, with some reports coming in below expectations, such as durable goods and the ISM manufacturing figures. However, it’s not across the board as we saw today, and as we saw out of the Chicago PMI last week. It’s mixed. Jobless claim reports are still doing better, even if they’re really not. They’re being reported better anyway, and the market is liking it. As long as we don’t get a series of bad shocks on the ongoing stream of economic reports, it looks as if the market will act favorable. It had its chance to die out when we got those two disappointments last week, but the market held strong and acted as bull markets do, which is to embrace the good news and ignore most, if not all, of the bad news that comes its way.
It boggles the mind to think of how well the transports are holding up when you look at the cost of oil, which seemingly goes up every day. The breakout over $100 per barrel was the catalyst for higher prices. Oil is now at 107.06 per barrel and showing no signs of technical headaches ahead. We can hope some come, but the price of oil is rising way too fast, yet, the transport stocks, although selling some, are not collapsing as many would expect. I’m not sure why they’re holding up as well as they are other than to come back to the bull-market theme, which is to ignore the bad and embrace the good. There’s nothing good coming out of the price of oil these days. That’s for sure, yet, the unwinding is happening in that area of the market as well without too much price erosion. The beat goes on.
So where are we these days? Well, it’s clear the 1370 resistance level of horizontal price was too tough for now to get through. Let’s face it, that makes perfect sense. We were overbought for so long, many weeks to be exact, and so you’d expect some decent hesitation when you get up to strong resistance. We tried breaching that level a few times, but were unable to hold onto the breakout intra-day. We are now unwinding as you know all too well, but we’re holding above key support levels, such as the 50-day exponential moving average currently at 1323 on the S&P 500. 1355 is the 20-day exponential moving average, and the bears have been unable to clear what should be easy support to break off of overbought conditions such as we have just experienced. So it’s still 1355 followed by 1323, and then critical at 1310, or the long-term downtrend line. Nothing aggressive here folks, but some exposure is always fine in a bullish market environment.
Peace,
Jack
