Transcendental Market Truths:
The Market:
Either the levitation being done by the Fed is getting weak or the smart money is stepping up the selling. I say that because the small caps, which had been outperforming over the last several sessions, suddenly seem to be selling off. It may be just profit taking. But yesterday, I saw the S&P 500 go to retest last week's high, while at the same time the S&P 600 not only failed to come anywhere near that high, it actually at one point traded below Tuesday's low point. That's a glaring bearish divergence, but is more of a symptom of the underlying condition of the market rather than an imminent sign of a downturn. Although it might be foolish to rule out such an immediate downturn, a number of my forward looking indicators are pointing toward two timeframes for tops of some significance.
The November 12th timeframe has the potential to be a high, although it more likely is a date which marks the beginning of an acceleration to the downside. In this case, October 27th would be the beginning of a mostly sideways malaise which usually characterizes stock market tops - newly-bullish traders having the propensity to add to positions on dips and prevent the normal correction from gaining traction. Once they realize the trend has turned down, then they all sell together and that could be the mid-November timeframe. Or, it could simply be the logical reaction to higher tax rates on capital gains coming next year. If the Congress fails to rescind the tax hike due in 2011, it would make sense for immense profit-taking to send the market lower from November into mid December, and that's the preferred path. It might even setup a good short term buying opportunity for a bear market rally into 2011.
The second date which is looking like a good candidate for a high is November 3, which is the obvious place where I would expect selling to begin. The Fed will announce its QE2 policy and with the market having been levitated on expectations of free money, profits will be taken. It's a case of "buy the rumor and sell the news". And, the Fed may disappoint the crowd by announcing a smaller program than the market has factored in. Of course, November 3 is the day after the elections and the market is likely to be suffering from a hangover after the pump stops.
A rally into the election remains a reasonable expectation, however. |
