Monday, September 3, 2012

Big Picture Market Musings

Election year roadmap seems to be intact from a timing perspective, so mindful of the period just ahead for a potential medium term trend reversal into October.

The Fed and other powers that be (e.g. the trading entities that drive market action) are trying to maintain price stability at a targeted growth rate.  The primary regression channel below from September expiration of last year depicts the current "growth trend".  For an earlier version and how it played out, click here.

Not only do we have horizontal resistance from the futures high established between March and May 1st earlier this year, we're also struggling to break above the mid channel line (thinner yellow line) of the primary channel from last Sep.  Additionally, the upper channel line from the June low also comes in circa 1420, yielding a triple confluence of resistance points all meeting in the same area.  Finally, the red channel lines define the range since the March futures high...we are trading at the high end of the range.  A meaningful break of 1420 opens the door to 1450-60, which is the top of the channel coming off the June bottom.

As for price action, it is acting like a high-level consolidation.  Breadth indicators are showing signs of distribution, but price action isn't really being impacted, resulting in a bull flag.  It does resemble the action seen in mid-to-late May, but the inverted version.  Back then, price action churned higher before the final high momentum plunge into the June bottom; currently, price action is churning lower.  So will we see a final high momentum spike into a Sep high before the typical election year correction into October?

Looking at breadth metrics, the NYSE Summation Index (ratio-adjusted) is a healthy 558.  I use 400 as my bull-bear line in the sand, so whenever the reading is above 400, market is in bullish mode.  Cumulative NYSE advance-decline line is near record all-time highs.  Cumulative new highs-lows continues to rise.  And finally, weekly breadth volatility (per the chart below) still looks favorable for continued market has not yet triggered a warning as the ATR continues to move lower.

Just for grins, I'll put up one additional chart.  It's a fractal-based forecast created a few weeks ago that has us moving higher into late October.  I'm not attempting to predict the future, but keep it in my mind as a reminder that irrespective of earnings growth (or lack of) and deteriorating economic conditions, markets can remain irrational longer than you can remain solvent...and the trend is your friend until the end.

Good trading!

No comments:

Post a Comment