Jaime,
I think you are wise to say that we should not let our guard down. Your observation of a possible distribution in the market is something I am taking seriously. Especially when you consider the distance traveled in such a short time. The DOW is currently up 903 pts on a month to month CLOSING basis. In fact, in overall points we moved an almost exact 1000 pts for the month of April. Some sort of retracement would only be expected.
I would like to throw out some of my observations to you and the thread with some possible scenarios on how things may play out. Any and all feedback would be appreciated.
I am currently seeing some divergences on the charts that I think MAY impact the SHORT term direction of prices. At least I think they should cause us to at least play it a little safe until the picture on things gets a little clearer. As I said in a previous post the utilites are at major support level. IMO, prices are at a point where there is no room for slippage without that major trendline being broken. On the other side we have rates in a definite uptrend also at a position to break through a congestion area. The confusing part is that both charts are positioned (imo) to break into higher ground. Which does not jive because a rise in rates should have a negative effect on the utilities as a whole. Plus I believe that both trends should see some sort of resolution in the next week or so. That is why I believe we may see some sort of news that could impact the interest rate environment. Let me also add that if rates do pop higher here I DO believe that it will be temporary only. There is some serious overhead resistance on the charts at the six percent level. Still rising rates could cause some serious volatility in the markets. Just something to keep an eye on. Overall, we have the DOW pushing into new highs. The transports pushing through a major congestion area this month. Prices are retesting the old highs set in April of 98. The NAZ this month has broken through the overhead resistance set the past three months and has set a new high in April. The disturbing thing here is it has done so without many of the major players. Stocks like DELL and INTC have been struggling the past couple of months. So far both have failed to even retest their old highs of a couple of months ago. Plus the NAZ has an unfilled gap of a couple of days ago. When I look at the tech sector overall my general impression is a lack of conviction. DELL and CSCO have unfilled gaps. MSFT closed weak on a weekly basis. Many of the smaller internet stocks like ONSL, MZON, NAVR, AMEN and BAMM (to name a few) are showing breakdowns on a intermediate term basis. This of course puts even more pressure on them now to undue the damage done. The interesting thing about many of their chart patterns is that often times it reflects a washout of many of the weak holders. Often times I have seen these patterns bottom only to make a sudden reversal and move higher. But yet those turnarounds have not happened yet so all we currently have is weakness of the overall trend. Therefore, it only makes sense to be nimble as well as cautious.
So I will be watching the action this coming week very carefully. I believe that prices need to move higher for many of the generals in order to keep things healthy. In my own head I could play out a couple different scenarios on what may happen. The DOW could start to retrace some of its recent gains,,,we could push higher into May possibly hitting 11300 and then retracing much of its gain,,,we could consolidate the next couple of weeks setting ourselves up for a summer rally. There are always so many possibilities. But because I do not know, I believe it makes sense to be as unbiased as possible. Always attempting to work only with what it given. Hopefully, that may help from being blindsided from the unexpected.
Keep an eye on rates. They could indeed be the catalyst for the immediate direction of prices.
Regards,
SO |
