<..Overlay the period of June 5 thru June 23 or so over the chart of Nov 4 to today....>
I occasionally use charts and indicators as guides for shorter term movements. But IMO, looking for similar patterns in disparate time frames or even different stocks is more voodoo than anything else. I know a lot of people in the industry, and none of them weight technicals very heavily in making trading decisions. And I don't know any wealthy chartists, but if you find it works for you, I definitely respect your experience and am interested in hearing of your successes.
I give greater credibility to your sector tracking, but I see a mix in the 30+ telcos that I track. LU may come in light due to rumored revenue shortfall, so that could have a short term chill.
<..I'm still convinced something has to bring this market down. Way, way, way too much mania, euphoria, irrational exuberance, whatever you want to call it...>
I understand this concern, though I don't share it (I did before the FIRST Fed cut, and before Japan started getting there house in order)
Anyway, we seem to be holding well 30ish, down a little on light volume - no serious selling.
Fwiw, here's some relevant commentary from Briefing.com for today:
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The Good, the Bad & the Ugly (with apologies to Clint)
Conflicting signals are normal in the market, it explains why there are always some bears and some bulls. But in our many years of analyzing the market, we have rarely witnessed a time when the cross currents were so strong in both directions. What confuses matters more is that the market has totally ignored the bad news over the past several weeks in its relentless march higher. The objective of today's Brief is not to reach a conclusion about the near-term direction of the stock market, but to identify a number of the good, bad and ugly forces we see at work in the market so that can better understand our current state of confusion and trepidation.
The Good
Fed Policy: Fed has cut the funds rate three times over the past six weeks, an extremely aggressive policy given that GDP growth remains in the 3.0%-2.5% range... This week's move proves that Fed not only acting to bolster psychology but to pump liquidity into the system to ease what it sees as tight credit conditions... Lower rates expected to prevent economy from experiencing anything worse than a short, soft landing... Market also banking on fact that rate reductions will keep the consumer consuming... Accommodating Fed the biggest driving force behind market resurgence.
Percentage of Stocks Above 200-day Moving Average: One of the factors Briefing pointed to for turning bullish after the 500+ point drop back in August was the historically low percentage of NYSE stocks trading above their long-term moving average... Percentage had dropped all the way down to 14%, a level hit on only a few occasions over the past 10 years... When this percentage gets so low, it suggests an extremely oversold condition.. Historically readings below 20% are very good buy signals... This time proved no exception, as market has racedhigher since bottoming on 10/8... Despite big comeback, only 33% of stocks now trade above their 200-day moving averages... Indicator remains bullish until reading of 60%+.
Liquidity: Plenty of cash on the sidelines - especially after investors and money managers built up cash holdings during market retreat.
Seasonals: Market not only escaped the dreaded month of October without crashing, it posted one of its biggest monthly gains ever... Set market up nicely for move into historically bullish months of November, December and January... Holiday season, IRA/pension infusions, window dressing and tax related movements all forces which contribute to the normally positive tone this time of year.
Best Game in Town: Uncompetitive interest rates, lingering anxiety over foreign investments - particularly in emerging markets, and relative political stability (still) make US stock market the best game in town.
The Bad
Earnings: Corporate earnings have slowed for the past several quarters... Last quarter, year/year growth totalling 2%-3% not awful but well below double-digit growth rates of a year ago... Though market estimates for the fourth quarter of this year have come down over past several weeks from 12%+ to near 7%, Briefing expects warnings season to create enough pessimism/realism to bring expectations down to the 2% or less area...Estimate for first quarter of CY99, still range in the 12%-15% area and there is no way market will achieve such growth... In fact, Briefing wouldn't be surprised if slowing economy results in one or more quarters of negative growth... Number of sectors to reduce capital spending budgets due to more difficult conditions... Not the stuff of sustained bull markets.
Valuations: S&P 500 back to trading at 28x trailing 12-mo earnings... This summer was the first and only time market traded at 30x ttm earnings and we saw what followed... While declining interest rates and low inflation argue for higher multiples, current levels unsustainable - especially in light of slowing corporate earnings growth... Market expensive by virtually every other measure of value as well.
Investor Intelligence Readings: Surge over the past six weeks has led to a dramatic improvement in market psychology as evidenced by the Investor Intelligence readings issued on Tuesday... Percentage of bullish advisors now at 57%, while percentage of bearish advisors has fallen to 31%... Typically, bullish readings above 55% and bearish readings of below 35% indicate an overly optimistic market... Given contrary nature of indicator, when you see such bullish readings it's time to take some money off the table - at least for the short-term.
Speculative Fervor: See Internet stocks... Last time market fell in lust with this sector, market melted down a couple months later... Huge gains in stocks with no proven earnings history indicates a willingness on part of investors to accept a high degree of risk... Again, such action used as a contrary indicator... When investors exhibit an insatiable appetite for stocks, regardless of risk, (at least a short-term) top is just around the corner.
Rising Number of Layoffs: Slowdown in corporate profits, lack of pricing power and global economic turbulence being felt where it counts the most - jobs... Workers being laid off in numbers not seen for years... Market has been slow to accept fact that jump in layoffs will result in reduced consumer spending... It will, it has to.
The Ugly
Deflation: Deflation, if it occurs, would change the picture completely, as market assumption that lower rates will cure economic ills will prove false... Economy will continue to contract despite low rates, as Fed left pushing on a string... We have seen this in Japan over the past several years and in this country back in the 30s... To those who would argue that deflationary trend in 30s were a one-time fluke, consider that it wasn't long ago that no one ever thought market would reexperience the go-go 20s...Last decade best ever... Declining commodity prices, lack of pricing power in corporate America, globalization of the economy and advancements in technology all contributing to the growing possibility of a deflationary period.
Parting Thought
It is said that market's climb a wall of worry... Given that Briefing sees enough worrying signs to build the Great Wall of China this could be one of the biggest bull moves ever.
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Have a good weekend. 70+ and sunny out this way. |
