Wednesday, October 20, 2010

Change of Trend or Steady as She Goes?

Yesterday was the worst day in markets since Ben Bernanke's wink and nod to manipulate all asset prices higher via QE2 at Jackson Hole, Wyoming.  Quite a few cross currents - we started the day the previous evening with 'disappointing' earning reports in big cap tech (only versus expectations).  Then overnight China raised their interest rates for the first time since 2007; this coupled with (empty) words from Secretary Treasury about his support of a strong dollar caught a mass of speculators pressing short dollars overextended and we saw some big reversals.  But is this a 1 day event or change in course?  Obviously no one knows but let's look at a few things.

I've noted the 13 day (exponential) moving average as a bogey supporting this entire run.  Yesterday was the first day this was broken INTRADAY but a late day rally off lows of the session saved the trend.

Normally the 13 day does not mean much to me, but since this has been the marker of the rally it is something I am keying on.   This level is now 1165 and with the 'urgent buyer' buying SPY futures this morning, we look good to hold once more.

Obviously currencies have been the talk of the town - I have stated over and over how the dollar could not catch even a minor bid as Uncle Ben sticks his foot on its neck.  The combo of the surprise Chinese rate hike + Geithner at the minimum caught a lot of fat and content dollar bears overextended.  Yesterday I stated it would be nice to see a close over the 20 day moving average of $78.25 - we close right below that level.

I think we'll actually get a better tell on the direction of this market from currencies than from equities - as counter intuitive as that sounds.  Why?  Because we're losing leadership.  Cloud stocks which were the end all, be all in September have been lost to sea in October.  Many financials are a mess with 'foreclosuregate'.  Some of the big cap tech leadership stocks show (minor) cracks.  And a market led by gold and commodities has a low probability of working *IF* the dollar can make a breakout.  Big if.

The % of S&P 500 stocks over the 50 day moving average still remains at extremes despite the 1 day selloff - this peaked at an almost unheard of 93% last week and has only fallen to 88%.

Other than that, my purchase of a solar stock last week has indeed stopped the sector in its tracks, continuing my historical magical touch (once I buy a solar stock that marks the top).  Now we have to see if I stopped the whole market rally with that purchase.  Let us not forget S&P 500 gaps at 1090 and 1110... usually these fill in 2-3 months.  We are now 7+ weeks out from the gap formation.  A move to S&P 1090 from here would be an additional 6.4% correction.

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions.
This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.

Copyright @2012