Posts filed under “Markets”
Since the rally began late October, it has been quantitatively different than the prior failed moves of 2004.
In many ways, this parallels the move that began in March 2003: Each was preceded by a series of false breakouts; Both made higher highs and higher lows (a notable improvement). In both cases, the 50 and 200 day moving averages were penetrated to the upside. And in both instances, the advance-decline line moved up smartly. That powerful “breadth thrust” created momentum that persisted much longer than most expected. Lastly, each established a significant trend line that proved difficult to crack.
That leads us to the move at hand. Presently, we are not particularly overbought, based upon the McClellan oscillators. That suggests mild consolidation – backing and filling, with shallow pull-backs – before the next leg up.
The only real red flag is Sentiment. It’s registering a bit too “giddy.” Investors describe themselves as Bullish only after they deploy capital, not before. Too many Bulls suggests a fully-invested Street. We’re not quite there yet, but if you want an indicator to fret about, this would be the one.
Indeed, if worrying makes you happy, then you need only peruse the news: Oil is stabilizing in the low $40s; Unless China’s economy stalls, Crude’s next move is more likely to be upwards than down. Iraq, temporarily off the front pages, remains problematic. The dollar’s freefall shows few signs of ending anytime soon. Interest rates continue to rise, flattening the yield curve . Housing, the economy’s biggest driver, is now in its 8th inning. There’s been little in the way of Job creation, and those jobs created pay less and offer worse benefits than those lost.
Regardless, the headlines are not what have been driving this market higher – it’s the technical set up, the healthy internals, and the cash on the sidelines. As we noted back in October, Wall Street was positioning for a year-end rally, and that rally is now in full throat. A rather complex mix of internals (trend, sentiment, monetary and valuation) are driving are the cyclical movers of equities.
That’s reason enough to (mostly) ignore the headlines, and focus your efforts on the underlying condition of the markets. These cyclical factors establish the path of least resistance, after a minor pause, as higher.
Way back in October 2003, we looked at master technical analyst George Lindsay’s repetitive chart pattern, Three Peaks and the Domed House. That version showed a fairly prescient call by Ned Davis, before the January ’04 top. That was then, this is now. Its time to revisit the pattern, this time via Jeff Hirsch of…Read More
In the midst of the recent big drop in oil – which is likely at least partly due to forced/margin selling – there is an interesting point to be considered.
Writing on the financial website Street Insights, Richard Ritholtz [Editor: no relation -- as far as I know] made the following comments today:
· It’s too early to write off the winter even though the weather has been quite mild in the Northeast and Midwest to date.
· Heating oil inventory is still at a low absolute level, although it is clearly in a building mode over the next weeks.
· The market experienced significant long liquidation yesterday as several large funds locked in their profit for the year; December 1st clearly signaled that year end is not far away.
· Based on information from several private forecasters, I believe that the overall winter temperatures from Dec. 21- Mar. 21 will be average to below normal even, though the November through early December temperatures have been milder.
As to the weather (ok…cue the “Let’s Make Fun of Rob Fraim” theme music here) here is something of interest (or fun if nothing else):
The Old Farmer’s Almanac has a noteworthy record for medium-to-longer range weather forecasts.
Oh, I know you’re laughing at me now. You’d rather pay attention to Skippy the Weatherman on your local Accu-Weather at 6:00 who can’t, for Pete’s sake figure out whether it’s going to rain tomorrow. (And who each year predicts 4 huge snowstorms that never materialize and misses on the blizzard that blindsides you.)