Transcendental Market Truths:
The Market:
It has been a very hard rally to believe in. Breadth has been very stop-start and volume has been putrid. Things just aren't in tune for a breakout to the upside of the range traced out since the April highs, in other words.
Neither is the market poised for a breakdown - yet.
The market has regained the 200-day moving average, a key benchmark for the institutions. Buying by institutions could levitate the market via a buying spree into options expiration (the week of triple-witching options expiration tends to be up), but the week following this one tends to be down very often. So, whatever high the market is making over the next few days is likely to be retraced pretty much completely - and more.
If the market wants a head-and-shoulders pattern, all it needs is a rally here to around the 1150 area and it will be a classic topping pattern.
Part of the counter-trend nature of the rally is due to the currencies. After the big runup in the dollar, it's taking a vacation and letting the foreign currencies have their day in the sun. The euro is actually bouncing higher alongside other, sounder currencies. The Dollar Index is approaching first support (around 85.3) and when it reaches it, should set the countertrending markets back on their ears, at least temporarily.
The other part of the counter-trend argument is that the economy is on the verge of slipping into another recession (just a part of the on-again, off-again depressionary condition caused by an over-leveraged economy with debt deflation occurring at the same time as asset inflation in stocks). When the market realizes that it's overly-optimistic earnings estimates are basically wishful thinking, stock prices will fall. But, as long as the illusion continues, the rally can continue. |
