And that means whipsaw, but little action worth talking about. The top today at 1208 should be the near-term high, although we will look for signs that it could be exceeded in the days ahead. 1101 is the clear low, and that level may never be taken out to the down side. The question I am being asked, already, is how long do these handles last. The best answer I can give is, no one knows, but a multi-month handle is very possible, if not likely. The bears did their best to take the markets down below 1249, and they did a great job. When we got extremely oversold, the market bottomed at 1101, and I talked about a handle to form, and that’s in place now. It will be boring, and probably long lasting. Lots of whipsaw. Very emotional. In the end nothing from nothing. In the months to come, it’ll make a move out of that handle, and there’s no way to know, for sure, which way it’ll break. It’ll be dependent upon economic reports to come over that time.
The market needs very little good news to move higher, and loads of bad news to move lower. Will the economy stabilize? If it does, up up and away we’ll go. If we see a real move down in manufacturing, such as we saw last month, chances are decent we’ll test the bottom again, and maybe make a slightly lower low, although good divergences will likely set-up if it does. No way to know right now. So, with the realization that the handle is in place here prepare yourself for it. If we can take out 1208 then we can test the 20-day exponential moving average at 1223, and rising, or falling each day depending on the way this whipsaw handle moves. If you’re a screaming bear you’re likely to be disappointed over the coming weeks, or months. If you’re a screaming bull, the same is likely. Neither side will get much, if any, satisfaction, but remember, the handle is huge, nearly 10%, thus, some wild swings can occur within it. Be prepared is again the best advice I can give. When you have such a large handle in place, loads of cash is the best way to play it.
The worst place continues to be the financial stocks, and those pesky, but weak, semiconductor stocks. I know it’s an old story, but worth repeating over and over in order to keep you away from them for as long as needed. We are not seeing any change in the patterns. The bears flags or handles are the worst ones in these two areas. Nothing good whatsoever.
Not that there’s anything great elsewhere, but these two laggards are really annoying for the longs, and should be avoided until we can see a pattern that breaks out. For now, that’s not even close to taking place. Don’t chase just because you think they’re too low in price. Low can stay very low for a lot longer than most think possible, so don’t get trapped. Someday it’ll change for the better. That day could be years away, especially in the financials. (For example, stocks such as The Goldman Sachs Group, Inc. (GS) and Bank of America Corporation (BAC) go up and down like a yo-yo, while other financial stocks, like American International Group, Inc. (AIG) may be up slightly, but their volume is way below the average traded.)
The market just isn’t acting in a fashion that suggests another strong leg lower is upon us. It was quite the move down from 1370 to 1101, but we’re already back to 1200, basically, and still no sign of turning back down to retest that low, which is very normal behavior. V bottoms are very rare and only occur when economies are suddenly booming higher. We don’t have that now, so sometime over the next few months you would expect the market to retest that 1101 low to some degree, if not a breach lower. It can be somewhat higher, but a test near it should, I say should, take place. I don’t see any signs that this economy is back off to the races after the latest no growth reading in manufacturing. If that were to happen, you’d have to see some great reports coming in on the economy, and I would not expect that to suddenly start to happen. So, even though we aren’t looking like we’re ready to head down yet, at some point in time, even if we get to 1223 first, we should go back and retest that 1101 level.
These types of markets are emotional and whipsaw in nature. Play too many longs, or too many shorts, and you’ll hate things as they unfold, because it’ll just be too emotional to hang in there if they start to go against you. Less is more. Lots of cash is the very best way to position yourself. Why put too much risk and emotion in a market such as this one! Avoid the headaches. Stay cash until the right time shows up and we can take advantage of it. Very few areas are doing well in this environment.
However, until we can lose 1185 to 1172 on the S&P 500, there won’t be much down side action. Until we can break above S&P 500 1223, the 50-day exponential moving average at this moment, you have almost no real upside to talk about. There’s just nothing to get excited about either way. Cash will be a huge part of our experience short-term at least.
Peace,
Jack
