Today, lets look at the long and short of it all for the US markets. At the end of this blog, I note a webinar this Wednesday at 3:20 pm EST for those who would like a refresh of the “Tenants of Trading”.
Near termed view
No doubt about it, the markets are getting a little ahead of themselves after the rapid bounce off of the technical support zone (4100-4200) I noted all summer. This leads into the potential for a little bit of a give-back in the near-term. Thereafter, I would anticipate a rally into the new year and a test of the 2022 highs near 4800. Below are some talking notes on why I feel a pullback is probable:
Near termed Sentiment is getting “too” bullish. Note the AAII Bear-count is approaching, although not at, a complacency signal–bottom right, circled:
The VIX on Friday hit the lower end of my “complacency” zone of 12.5.
My neartermed timing system has gone deeper into a sell signal:
Longer termed view
Virtually every breadth indictor I follow is screaming bearish. Not enough participation yet. If this condition does not right itself, there is little hope of the current rally turning into nothing but a test of the old highs (4800 on the SPX) with questionable follow-through.
Here are two breadth indications suggesting too much concentration: Dow Theory Divergence between the Industrials and Transports is screamingly bearish. Here’s the INDU (red) vs TRAN (black) chart. Big ugly divergence!
The broad based NYSE index is vastly underperforming the tech-weighted SPX. Here’s the NYSE index vs the SPX, note the gap–but also note that the SPX (red) took out its August peak AND is nearing old highs, while the NYSE (black) is below its August peak and way below old highs. This is non-confirmation of the broad market vs the tech heavy SPX:
The Fed & Baby Boomers
Larry McDonald, BearTraps:
“A weaker greenback makes a sustained inflation regime highly probable. The Fed will likely be forced to adjust its 2% inflation target higher in 2024. At the same time, everyone is Jonesing in the rear-view mirror. On the bright side, metals and emerging markets have taken notice, capital inflows are surging. To add to the insult, bonds are the most attractive vs. stocks in decades and the eldest boomers are approaching 79 years of age. There is a reason why major indices are unchanged for 26-28 months, it’s NOT a coincidence. Just because financial media is desperate for clicks and cheers on year-to-date gains, doesn’t mean stocks have gone anywhere without QE since 2021″
I’m going to use any neartermed pullback to add to positions to play the market out to its probable return to old time highs. From there, I wont take action to buy OR sell UNLESS I see 4800 fail decisively. One step at a time.
Moneyshow Webinar This Wednesday 3:20pm EST
I’ll be doing a free webinar for the MoneyShow this coming Wednesday Nov. 29th at 3:20 EST. I will be presenting the same webinar I just did for the MoneySaver – designed for novice investors AND as a reminder of the basics for you old dogs out there. It’s a great introduction for friends and family to learn how to use stock charts and make wise decisions.
Click on the link below, and please forward it to anyone you think would benefit from learning the basics of Technical Analysis.