Why 1991 Was Different…
Naturally at this time, market on the
defensive, geo-political concerns, etc., the market is at a critical
juncture. Last week, the S&Ps (futures) managed to tag their 50% (862) and 62.5%
(840) retracements off the October low/December high. Technically speaking, a
break of the 62.5% level (840) would most certainly set the stage for a test of
those October lows. Friday’s rally took us out of a short-term oversold
condition, there may be more room to run, and news and economic reports this
week will likely make the decision as to whether or not there will be more
up-side follow through. From a longer-term perspective, it is simply a bump in
the road as the market will ultimately roll over again.
Intraday continues to offer good setups, albeit in a different fashion than
we short-term traders have grown accustomed to. The price action is deliberate
and labored, up or down. The noise can be frustrating, but if you place your
stops and try not to micro-manage the position, you will find that the market is
trending quite nicely intraday.
Given that the tone of the market has improved since Friday’s move higher,
and on the heels of the RF MicroDevices
(
RFMD |
Quote |
Chart |
News |
PowerRating) news, this sector will likely once again track the market quite
well. Remember, trends intraday on these stocks tend to feed on themselves. I
will be keeping an eye on the NYSE chip stocks like AMD,
TXN, MU
and ADI for possible long entries.
The ISM reading will be released at 10:00
AM EST, naturally a major deviation from the consensus estimate of 54 will offer
a nice entry point with good follow through.
Key Technical
Numbers (futures):
S&Ps |
Nasdaq |
| **884-85** | 992-95 |
| 875-77 | 986 |
| **862-65** | 975 |
| 849-52 | 960 |
| **837-40** | 957 |
| 821 | *941* |
| 815 | 930 |
| 1147-50 | *920* |
| 1141 | 1480-85 (key support) |
| 1134 (key support) | 1471 |
| 1125 | 1460Â |
On a side note regarding the much talked about War Relief Rally, let’s
look at the contrast between market conditions between now and in 1991. In 1991,
investor sentiment showed the following readings, 34.5% bulls and 52.1% bears,
today we have the complete opposite, 50% bulls and 26.1 bears. As Jim Grant
said, “history repeats itself, but never so literally as to enrich historians.”*
* statistics and quotes courtesy of Elliot Wave
International
As always, feel free to send me your comments and
questions.