These 7 factors could drive the markets in the coming weeks
Some times stock market
analysis seems less important than other things that are going on in the world. With everything I have
been seeing on TV with regards to hurricane Katrina, it sure doesn’t seem quite
as important today. My thoughts and prayers go out to all the victims of the
storm.
It is the end of the month, and I do like to give a breakdown of things I’m
looking at at the end of each month, so here goes:
Positives
Foreign Markets – Many foreign markets have been holding up fairly well.
Although the U.S. has pulled back over the last few weeks, there are some
foreign markets that have gone unscathed. A few areas that are showing
leadership currently include Canada, Eastern Europe and Russia, Japan and Latin
America. A global pullback would be more daunting than what is so far more U.S.
focused. So far so good here.
Neutral
New Highs vs. New Lows – This number has been deteriorating in recent weeks.
While new lows have not yet gained great strength, they normally don’t at tops.
It takes a while for the negative breadth numbers to increase significantly. New
highs have dropped off but are still outpacing the lows. This mildly concerning
at this point, but bears watching.
Sentiment – We don’t seem to be at a notable extreme here so I am deeming
sentiment a non-factor until readings move a bit more.
Accumulation/Distribution – There has been a bit more distribution than
accumulation in the market, but nothing overwhelming.
UUWNHI* – What’s working and what isn’t? The market has been tricky. There hasn’t
been strong, sustained follow through in either direction, which is typical of a
market without a strong trend. Unfortunately this means that nothing as been
working well for more than a few days at a time. Some of the best opportunities
I’ve seen have been in playing overbought/oversold conditions in indices and
ETF’s — some of which I’ve pointed out in recent columns. So what does this tell
us about the health of the market? Right now, not much.
*Unofficial Unscientific Working/Not Working
Hanna Indicator
Negatives
My shrinking watch list – What this means is that
I am seeing more basing formations fall apart than I am seeing basing formations
form. This is not good. Less bases means less leadership and less opportunity to
profit should the market move higher.
Wildcard
The full economic impact of Katrina, the
potential oil supply problems and rising gas and oil prices is not yet known.
While the US economy is incredibly resilient, it has been nearly 2 ½ years now
since we’ve seen a true market correction. That is a long time. Could this
potentially lead to one? Only time will tell. Stay posted.
Best of luck with your trading,
Rob