You just slipped that chart in by Ross to scare me, right? Here are just some "off the cuff" thoughts that I am open to feedback on.
Next week I will be looking more closely at the market, and particular investor sentiment. Part of this is identifying why the money is going to or has alerady gone to, and who is left playing the market. What is the "big" money doing, like institutions. I also want to get a read on where the bonds and commodities are, and what sectors have been showing good relative strength through this consolidation phase of the market. The sectors and stocks that have been showing good relative strength through this corrective phase of the market will I think be the first to move up when the market takes off again. Unfortunately, many of the the high-tech market leaders have not been preforming well in this area. For what I have seen so far, many industries in this sector have been showing weakness.
Perhaps another market leader will emerge. The market tends to go in cycles in this area by revisiting old market leaders like the Semis and even the Biotechs, for instance. In this case, it may be another sector. The oils have done well in the recent past, and they have gone through their correction. Perhaps they are worth keeping an eye on, particularily if interest rates were to move up and evidence of inflation were to arrive on the scene.
From my brief glance at the charts, there definitely appears to have been a topping and consolidation pattern. This resulted in two phases of a correction, where in both cases it lead into a consolidation. This has definitely been a type of correction on the intermediate term scope. This can last several months with continuing downside potential. Some knowledgeable people, like Henry Brokkins, are looking for what they consider the "positive" possability of the market correcting much further. Some of the well seasoned (and not so well seasoned) individuals that I have talked to say the same thing.
There has been problems abroad in the Asian markets, including Japan. Even though there are some serious problems over there, much of its longer term impact is still pretty ill-defined at this point. Will the Japanese be force to sell bonds and liquidate their holdings in the U.S. markets? Who knows at this point? So I think the foreign markets have introduced "noise" into the picture. It is the case where the market sentiment has been rather pessamistic, so it has been "leaning" toward lower prices. It will respond to negative news in a much more substantial way than to positive news. News like the foreing market crises have helped the market break to the downside, or at the very least keep it consolidating at lower levels. So this "noise" for short term traders, particularily if it helps the market break toward where it was already leaning, does have a significant impact over the short term. The point here is the "quality" of the news instead of its specifics. If it were not hte foreign market crises, it would of been some other negative news.
Now there is some positive news was pointed out to me by Henry Brookins in his newsletter The volitility where the NASDAQ has been consolidating is decreasing. He notes this as a converging trading range indicated in part by the converging moving averages of this index within an encompassing triangle, an ascenfing right triandle. This happens just before a major move in the market. He is thinking it will be a strong move. This makes sense since this last leg of the correction has been consolidating for over one month, which is a part of a longer term correction that has been I think about two months in duration. And the convergence of the trading range has been substantial. I will have to look at the price/volume action for some addditional perspective.
I think watching the NASDAQ is important because the NASDAQ represents the previous high-tech market leaders, and also the smaller cap market issues, at least compared with some of the other indices. The money in the past was being played on smaller cap issues. But lately, from what I understand, the smaller cap issues have not been doing well either. There has been periods of market activity in the blue chips. So if the NASDAQ rallies without the Dow following in its footsteps, then we are in trouble. If the Dow rallies without the NASDAQ following, or lagging behind, then the makeup of the market has changed and it would be prudent to wait to see what has changed and its implications for future trades. Look for new market leaders in this situation. If the NASDAQ rallies followed by the Dow, particularily a rally in high-tech industries, then it is likely "business as usual".
I still would wait in a rally for both indices to be in good, solid positive terratory above significant supports making news highs under good volume. Volume is important here because this is an indication that the commercials and institutions are participating in the market move. For a period of time now, these players have been sitting it out. And they contue to do so. that is why the market has not been going anywhere (up).
Just some thoughts. Comments anyone?
Bob Graham |
