Market Commentary

We’ve talked about the "line in the sand" (where the bulls and bears are battling at the 1400 level in the S&P 500 index). Well, at the end of this week, we’re still at the same place.

The emotional momentum of last week has faded some, however the market held up nicely in the face of additional bad news this week. From my perspective, that’s a positive sign.

I expect a bunch of smaller traders to short the 1400 level into Tuesday’s Fed meeting.  It seems like a safe trade.  So, while a "correction" downward wouldn’t surprise me here; I am not bearish.  In fact, I think a move above that level would trigger a rash of buying (both organic and short-covering) … and is thus more likely.

This was a quiet week in the market. Until Friday, each day was a narrow range day with very little volume. For the first time in a while there seemed to be very little external influence on the market. Governments weren’t overtly buying or selling to push an agenda. Giant funds weren’t trying desperately to hedge positions or cover margin calls. Instead, it was just the normal fear and greed of market participants. It was the dance of the undecided.

There were attempts to move the market down, only to have the market close relatively unchanged. There also were moves to push the markets higher, only to come back down and close, again, relatively unchanged. To me, though, that was good news. All-in-all I thought it was a constructive week of base-building that will serve the market well in the weeks ahead.

On Thursday, I told one our portfolio managers that it would be very easy to see some selling so close to important overhead and down-trend resistance. Also I expected a re-test of the 50-day moving average.  From a chartist’s standpoint, these are common-sense "Technical Analysis 101" comments and expectations.

Friday was interesting. It is earnings season and GE announced results that fell far short of expectations.  The markets sold off pretty hard.  And now investors are twitchy again.  Everywhere I turned pundits blamed the sell-off on GE and were predicting the next bear leg down.

This is why they say that "markets climb a wall of worry." Experienced traders know that it is not the news that matters, it is the reaction to the news.  In my opinion, GE simply stirred-up emotions that were already there.  A little selling and over-reaction were expected, even if GE’s announcement wasn’t.

This was a quiet week in the market. Until Friday, each day was a narrow range day with very little volume. For the first time in a while there seemed to be very little external influence on the market. Governments weren’t overtly buying or selling to push an agenda. Giant funds weren’t trying desperately to hedge positions or cover margin calls. Instead, it was just the normal fear and greed of market participants. It was the dance of the undecided.

There were attempts to move the market down, only to have the market close relatively unchanged. There also were moves to push the markets higher, only to come back down and close, again, relatively unchanged. To me, though, that was good news. All-in-all I thought it was a constructive week of base-building that will serve the market well in the weeks ahead.

On Thursday, I told one our portfolio managers that it would be very easy to see some selling so close to important overhead and down-trend resistance. Also I expected a re-test of the 50-day moving average.  From a chartist’s standpoint, these are common-sense "Technical Analysis 101" comments and expectations.

Friday was interesting. It is earnings season and GE announced results that fell far short of expectations.  The markets sold off pretty hard.  And now investors are twitchy again.  Everywhere I turned pundits blamed the sell-off on GE and were predicting the next bear leg down.

This is why they say that "markets climb a wall of worry." Experienced traders know that it is not the news that matters, it is the reaction to the news.  In my opinion, GE simply stirred-up emotions that were already there.  A little selling and over-reaction were expected, even if GE’s announcement wasn’t.

A Wild Ride:

"Six 180-degree turns. Twelve drops. Sixteen changes of direction. Twenty-seven elevation changes. Those stats describe Coney Island’s famous vertigo-inducing Cyclone roller coaster. But it could just as easily describe the hair-raising ride that Wall Street investors have been on this year."

I don’t normally turn to USAToday for trading information, but they had a clever piece, with some interesting market stats, worth sharing.

Q1 brought some pretty frightening results.

• According to The Economist,
  the American market was down 9.9%, Europe dropped 9.2%, the MSCI World index was down 9.5%, and emerging markets lost 11.3%;
• March was the 5th month in a row
  that the S&P declined.
• Bespoke reports that the average stock in the S&P 500 is down 31 % from it’s 52-week high;
• employers cut jobs for the third month in a row, as unempolyment becomes a bigger problem; and
• the Government announced it was undertaking a sweeping overhaul of the country’s financial system.

The next chart is a simple daily view of the Dow.  Despite recent events, it shows that we’re back up to resistance again.

Only, this time, the VIX is showing
very little investor fear – and that scares
me.  Tickersense had this chart.


However, since this comes so soon after mass panic, "lack of fear" may actually be
a sign of strength.  That’s kind of funny, a contrary indication of a contrary indicator.  Even Freud admits that sometimes a "cigar is just a cigar" … So why is it so hard to interpret subsiding fear and rising prices as a positive?

A Wild Ride:

"Six 180-degree turns. Twelve drops. Sixteen changes of direction. Twenty-seven elevation changes. Those stats describe Coney Island’s famous vertigo-inducing Cyclone roller coaster. But it could just as easily describe the hair-raising ride that Wall Street investors have been on this year."

I don’t normally turn to USAToday for trading information, but they had a clever piece, with some interesting market stats, worth sharing.

Q1 brought some pretty frightening results.

• According to The Economist,
  the American market was down 9.9%, Europe dropped 9.2%, the MSCI World index was down 9.5%, and emerging markets lost 11.3%;
• March was the 5th month in a row
  that the S&P declined.
• Bespoke reports that the average stock in the S&P 500 is down 31 % from it’s 52-week high;
• employers cut jobs for the third month in a row, as unempolyment becomes a bigger problem; and
• the Government announced it was undertaking a sweeping overhaul of the country’s financial system.

The next chart is a simple daily view of the Dow.  Despite recent events, it shows that we’re back up to resistance again.

Only, this time, the VIX is showing
very little investor fear – and that scares
me.  Tickersense had this chart.


However, since this comes so soon after mass panic, "lack of fear" may actually be
a sign of strength.  That’s kind of funny, a contrary indication of a contrary indicator.  Even Freud admits that sometimes a "cigar is just a cigar" … So why is it so hard to interpret subsiding fear and rising prices as a positive?

This was an interesting week in the Markets. Most of the major indices broke above their 50-day moving averages, only to come back down.

It won’t take much to throw a scare into the markets at this point in time. Consumer confidence and retail investor sentiment are both incredibly bearish – which is actually a bullish sign for most sophisticated investors.

The chart below shows a monthly view of the S&P 500 with an interesting look at RSI.  I found it at Headline Charts, which is another blog I enjoy reading. 

This is what intermediate bottoms are made from. As the panic builds this time, realize that the weakest holders have already sold. There may be a panic spike coming; but the downward momentum isn’t as strong. This is where positive divergences start to show-up. And each time this level holds it becomes stronger support.  The trick here, of course, is for that level to hold.

What, Me Worry?   According to the NYTimes, the White House is seeking new Fed power to keep markets stable. On Monday, the Bush administration plans to propose broad new authority for the Federal Reserve to oversee market stability, possibly exposing Wall Street firms to greater scrutiny, but avoiding a call for tighter regulation. Is that supposed to make the markets feel better?