In This Market, This Should Be At The Top Of Your List
The equity markets experienced another tough week,
and while the point movements of the key indexes were not extreme, market
internals continued to weaken. Aside from a sharp rally on Tuesday, the overall
tone for the week was pretty downbeat. This came despite comments from Alan
Greenspan, where he suggested that economic growth would resume at a strong
pace. Instead, market players were focused on negative earnings reports and
guidance from Cisco Systems and Hewlett-Packard. In addition, traders could not
help but worry over the pace of the rally in crude oil, which finished at
another new all-time high
above $46.00 a barrel.Â
For the
week, the September SP 500 futures added +2.75 points, while the Dow tacked on
32 points. On a weekly basis, the ES posted a doji above its lower down channel
line at 1050. Looking at the daily chart, the ES also posted a doji after
posting a new weekly low and finding some short-covering ahead of the close.Â
The YM and ER2 posted identical patterns, so to put it in plain English, the
week’s effort was a sorry excuse for a bounce.Â
                
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September
bonds (ZB) posted an inside week with a hanging man, and continue to hover under
the 78.6% Fib retracement of the year’s decline. The Semiconductor Index (SOX)
found some short covering after posting another new 52-week low, and is still
showing some daily bullish divergence. The Banking Index (BKX) posted a daily
market structure high as it continues to consolidate in both weekly and daily
symmetrical triangles.
Probably
the most interesting theme of the week was equities markets’ inability to hold
their gains after the Fed’s bullish comments about the economy. The Fed
remained pretty hawkish, despite a growing belief among many pundits that they
would back away from their stance towards further tightening. They cited rising
energy prices for the “soft patch”, and labeled it as “temporary.â€Â Initially,
traders bought into the Fed’s statement, but the gains were short-lived. By
week’s end, there seemed to be a sense of mistrust that the Fed was a bit too
overly optimistic in their comments. That mistrust was re-enforced on Friday
when perpetual cheerleader John Snow stated that the global economy was
slowing. This comes at a time when certain inflation measures are suggesting
higher prices down the road. This could be why the Fed talked up the economy,
in order to have an excuse to raise rates without startling the markets about
inflation. Whatever the Fed’s intentions were, they are now walking a very
tight rope with their credibility at stake, but I’m not sure that Greenspan even
cares.
Right now,
the key indexes remain in poor technical shape.Â
Market internals have continued
to weaken, while volume has expanded on down days. Also, all 3 of the major
indexes now sit well below their 200-day Moving Averages. The only thing to
salvage at the moment is the degree to which equities are oversold on a short
and intermediate term basis. As we’ve seen time and time again, oversold can
just become more oversold, and unless a rally is accompanied by strong
internals, any strength could be used to get lined up on the short side. Above
all, capital preservation should be at the top of all traders’ lists, as it has
been very painful for anyone trying to be a hero bottom-picker and end up
catching a falling knife these last several weeks.Â
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Please feel free to email me with any questions
you might have, and have a great trading week!