Hi Sue,
<< ...given how we broke through the 36.39 you mentioned in Sunday's analysis, does that mean that the upswing you'd seen coming can now be kissed goodbye? >>
Not at all.
I have been whining for some time now about how acutely contracted the BBs have been, and how unstable this is. QQQQ had to find a way to resolve that, and it did:
stockcharts.com[w,a]daclyyay[dc][pd20,2!b200][vc60][iLg!Lyb20,2.0]&pref=G
Say what you like about Greenspan, but the fact is the market would have found SOME "reason" to do this sooner or later (I thought next week). If Greenspan had gotten laryngitis and said nothing, still the outcome would have been the same, except that the talking heads would be attibuting it to some other "reason." Also, if you look at what happened the last time the BBs were so contracted (end of December), you can see that this time we got off pretty light.
True, I thought this would occur beginning very late this week or early next week, and that in between we would see some upside. I had the order wrong, but not the facts, as we will see----you heard it here first: the market will rally. There are many bits of evidence to support this conclusion. Some of them happened today amidst all the selling---there was tremendous supportive volume built up. This only adds to a growing surplus of supportive volume. This is unstable, and just as the market had to react to the acutely contracted BBs, so too it must react to the surplus supportive volume. The more this is delayed, the more powerful the force.
That does not mean I expect a strong uptrend now, I do not. There are reasons why that region of very heavy overhead resistance beginning at $38.01 will not be significantly penetrated this time around, and I don't think QQQQ will even get close to that. I think QQQQ will get no higher than the descending 50 sma, and might well be turned back by the descending 20 sma.
Anyway, if you examine what happened the last time, I think that will give you a clue to what will happen this time as well. Nothing substantial has changed. Nothing. And by the way, the market has already priced in a nearly 100% probability that the FOMC will raise rates at every single meeting between now and November, according to the Fed Funds futures contracts.
So, I expect a relief rally that will be modest. The BBs will expand a bit further. QQQQ will move back above the 200 sma, then chug along choppily for a while.... it may even persist long enough to hit the upper regression channel rail that defines this medium-term correction:
139.142.147.218
Then, probably when the BBs have again gotten contracted, it will again find some "reason" to plunge downward. This time, it will take out the current low, and head for the lower regression channel rail. The longer this plunge is delayed, the less likely it becomes that the lower rail will actually get reached, because with each passing day, the regression channel rail drops further. And, as I have posted before, there are limits to how far down QQQQ will go. These are defined by the very solid long-term chart support, and the support from the regression channel rails that define the long-term uptrend that the market is currently in, and will continue to be in for at least the next 6 months or year:
139.142.147.218
As you can see in the above chart, currently that rail is at $35, but it is rising.
Now, a bit of clarification is in order I think. The lower regression channel rail is not an absolute barrier. It defines 95% of the price movement---not 100% of the price movement. This means that QQQQ can indeed drop below this rail (or rise above) occasionally, for rather short stretches. But it cannot significantly move these rails, because these have been defined by the last 30 months of price action. The longer this time frame, the more solid these rails become. As a matter of fact, I expect that QQQQ will indeed drop below that lower rail, but not for very long at all (1 - 3 weeks at most on the weekly chart), and if and when that happens, you can be very sure that reversal is at hand. Why? For exactly the same reason the BBs got blown open: we would have an unstable situation that must be resolved. The market will find a way to do that, either with Greenspeak, or without Greenspeak, or even in spite of Greenspeak, it doesn't really matter one bit.
So we have two opposing regression functions: a long term one that is exerting pressure upwards, and a medium term one that is doing just the opposite. Eventually, these will clash, and the result is that the bigger one will win out (i.e., the long-term uptrend). So, this "collision" will define the reversal.
But don't expect a V-bottom, obvious reversal when that day arrives. Probably, the market will meander up and sideways choppily for a while, because I expect the $SOX will lag the general market, and until the $SOX participates in a reversal and rally, QQQQ can only meander up seemingly without conviction.
About the time the talking heads are sounding pretty bearish, the $SOX will reverse, and join forces with QQQQ to power a surge upwards that will have all the press scrambling for "explanations."
I think it would be ironic if the explanations invoked at that time again centered on Greenspan. I wouldn't be surprised one bit.
Me? I am long QQQQ, so I put my money where my mouth is, which is something I suspect precious few talking heads are willing to do. Might I be wrong? Possibly, but I don't think so. But if so, it is because I am distracted from hearing what the charts are saying.... distracted, perhaps, by noise about Greenspeak, or God knows what.
The moral of the story: the charts are telling us something, if we will only listen. It is right there. We will be able to explain it all ever so nicely in 6 months, and scratch our heads, and once again wonder, "Now, that's so plain... why didn't I see that at the time? What the hell was I thinking?"
And on that day, you will know why I read charts, and not newspapers.
T |
