How To Read The Language Of The Market
What Friday’s Action Tells You
Friday’s market action resulted in an opening move
to a marginal SPX
PowerRating) new high at 1062.39, and then a move back
down into that 60-minute chart trading range where price has spent most of its
time since Oct. 29. (See Nov.
7 commentary.) The SPX hit 1061.44 on last Monday and 1062.29 on Friday,
but closed the week at 1053.21, up just 0.3%, or 2.5 points on the week, in
spite of all the positive media hype on GDP, etc., most of which was anticipated
and well advertised in advance.
The churning last week is right at the 1060 .382
retracement zone to 1553 from the bear market low of 769, in addition to the
daily chart negative divergence in momentum. There is certainly other confluence
just above 1060. (See Nov.
4 commentary.) In fact, you should keep for reference the Nov. 4 and Nov.
7 commentaries which frame most of these levels. Friday’s commentary shows the
near-term retracement levels to 1018.32 and the Fib extensions above 1061.44
if they push price some more.
Looking at this week’s market table in relation
to the previous week’s table, you can clearly see the drop off in momentum relative
to rising price in the major indices. Last Thursday, the four-day moving average
of the “Advances Minus Declines” topped out at +803, as did the four-day moving
average of the “Volume Ratio” at 64. The “Breadth” moving average declined into
Monday, as the SPX price advanced to the 1060 .382 retracement zone for the
first time, hitting 1061.44. This ratio continued to decline into Friday’s +243
number, while price made another run on news hype to 1062.39, but closed at
1053.21 and below the midpoint of the week’s daily range. (See “Percentage Range”
of 47 in “Net” column.)
The “Volume Ratio” moving average
held at 62 into
last Monday, but declined to 51 on Friday, certainly not oversold, so there
obviously no short-term buy edge right here. The ratio of “Up
Volume” to “Down
Volume” was 1.6:1 the week ending Oct. 31, but dropped to 1.3 last
“Five-Day RSI” declined to 56, with the SPX making a marginal new
1062.39 on Friday from the five-day RSI of 78 on Monday when the index hit
Looking at the major sectors, it was all
again last week, with the
PowerRating) +5.8% net for the week, on top of a
net gain the previous week and into the confluence zone of four numbers.
the Nov. 7 commentary.) The other strong sectors during this recent move
been the XBD, +1.4% last week, but +6.4% for the past two weeks. The CYC is
+6.1% for the two-week period. There was a divergence last week in the
sector, as the RTH was -0.3% net for the week after a +3.3% gain the
Because the SMH, XBD and CYC are so extended
longer-term standard deviation basis, there are in the red alert zone and
be watched closely for early warning which might precede a worthwhile
retracement in the major indices. In addition to the CYC, you should be
the copper futures which are also extremely extended and can be an early
in a reversal of the cyclicals.
Friday’s trading action in the major indices
mostly chop, unless you played the Trap Door reversal of the Monday SPX
high. Even if you did, it was a hard trade to manage because you had to play
retracement long setup at the 20-period EMA that moved back in the direction
the open. There was a 3:30 p.m. ET flash down move of about 5 SPX points,
all in all, not a very well defined trading day.
I am doing this Sunday for Monday, Nov. 10,
wish all of you ex-Marines Happy Birthday and Semper Fi. I generally get
sometimes on this day, but I don’t think any of you but the Far Left will
and frankly ———————–.
The major indices and semis start the week in
zone of confluence, in addition to still being in a time period, so price
is key after seeing the divergences last week in the table’s statistics.
has entered a potential reversal zone, but we don’t know whether it goes
sideways in a trading range and up, or else reverses and down. The 1050 –
SPX zone will have some issues with price, and more so because of the
divergences you see in momentum. If it reverses down more than 5.0%, it will
produce a good short-term buying opportunity. Don’t get caught trying to
a bear market on this market that has price above all of its rising moving
Aggressive traders can play the very
moves both ways, but general market participants are, and should have, been
for quite a long time, and should remain so because the market hasn’t hinted
any significant way that it is changing direction. If you have protected
significant gains with cheap index puts vs. your index proxy long positions,
then by the way I think, you have “done good” as they say because
if the indices
take off on a +20% run through the new year, and you only gain 15%, do you
really care? But if it is a -20% terrorist-induced crash, and you only lose
– 6.0% from that level, I would expect you to be feeling pretty good about
yourself and your money, as you should.
Have a good trading day,