Transcendental Market Fragments:
The Market:
Tax loss selling continues to pressure the market on rallies, while bargain hunting keeps the downside very limited. I expect this to continue this week. With the dollar having put in a convincing bottom, carry trade unwinding will continue to depress all assets denominated in US Dollars.
Gold:
The Gold bubble has burst and it has a long way to fall from here.
Mining Stocks:
The distribution in mining shares sent a loud and clear message: Gold is in an unsustainable uptrend. In fact, much of the rally in Gold prices may have been due to short-covering (at big losses) by the mining companies themselves!
Dow Industrials:
US stocks are cheap in Euros and may be attractive to foreigners who do business in overvalued currencies like the Euro. Last week, the Dow hit the price where the current leg up was exactly equal to the first leg up off the March low - and strong selling hit the market. Money flow turned sharply negative. While this may be an early warning of a top under development, it's not extensive enough to warn of a big plunge in the immediate future. The Dow has been a leader on the upside and it may be topping ahead of the SPX and NDX, just as it did at the 2000 top. But, I will need to wait and see how the money flow continues to act before declaring the Dow at a top. I suspect it will push above the recent high and create some short covering buying activity.
S&P Midcap 400:
The Midcaps continue to be the strongest broad sector in the market. There was little selling during the October-November downturn compared to the other indices. I suggest that with the large stocks having a lot of cash on their balance sheets and with lower growth prospects ahead, many of these midcap stocks could be acquisition targets in the future. This may be why I'm not seeing much distribution pressure in the sector.
NYSE Common Stock Advance-Decline Line:
The Advance-Decline Line of NYSE Common Stocks has gone flat, which is not bearish. This time of year, with tax loss selling still taking place, that's actually net bullish and suggests the normal seasonal upsurge in stocks is still on track to happen soon. When the A-D line breaks to the upside, the Market could get that big thrust rally which exhausts the buyers (as well as those who have sold too early).
Bottom Line:
The market should stay within the range that bounded it last week. This sideways market will be followed by a thrust rally during the week beginning December 14th. That would fit the pattern of an Elliott contracting triangle here, followed by a thrust rally. |
