Market Direction Thoughts 4/4/04
Commentary on Previous Reports
Last week I wrote that I expected more clarity by 4/2/04. The markets rose quickly, and were considerably stronger than I expected, so the only clarity came from 20/20 hindsight. Instead of 1-2 days of upward action we saw 4 days up. 2000 should have held $COMPQ in check, but it didn’t. 1125 should have held $SPX back, but also failed.
Commentary for This Week
My inclination to short $COMPQ at 2000 would have left me in the red for the week. Next resistance lies at 2060 (we’re on the doorstep), 2080, and 2150. I expect 1900 to hold as support for any decline that we may see, but I doubt that we’ll have to rely on that level. Daily ORMA is overbought. Weekly ORMA shows a very nice fishhook bottom. I’m not a big follower of gap fills, but we now have a gap at 2020 that I think should be filled.
P&F chart is back in X’s, having held support:
stockcharts.com[PA][D][F1!3!1.5!!2!20]&pref=G
$SPX easily took out resistance at 1125, and now faces very stiff resistance around 1160. Daily ORMA is approaching overbought conditions. Weekly ORMA is still dropping at around 41%, which is low enough for a reversal, but not yet oversold. We have support at 1087-1090.
P&F chart remains strong, having reversed back into X’s:
stockcharts.com[PA][D][F1!3!1.5!!2!20]&pref=G
General:
Bull/Bear strength indicates that one can probably sell on Monday and buy back cheaper by Friday. Bull Strength is waning, but Bear Strength is nearly non-existent.
P&F BP’s
BPINDU reversed into X’s, and remains at very high levels:
stockcharts.com[PA][D][F1!3!2.0!!2!20]&pref=G
VIX
- Daily: ORMA oscillator is oversold, meaning that the near-term (1-5 days) risk is high. Another home-brewed oscillator makes allowance for upside lasting a few days, but confirms that the market is approaching over-bought.
- Weekly: ORMA oscillator still looks like we’re having a bull market dip and are ready to resume the uptrend. Weekly view of home-brewed oscillator lends strength to a position that the bull will resume soon.
Promising/dismal sectors:
I generally examine weekly charts for any sector analysis. I stated last week that Japanese stocks are in break-out mode and can be bought here. EWJ, my measuring stick here, appreciated very little this week, but still looks very strong. XAU is attractive (on a pullback), as are TTH and RTH. BKX and RKH should be avoided. Most tech-intensive composite indicators (XCI, SMH, SOX, etc) appear to have bounced a bit too much, so will, IMO, experience a bit of a pullback.
Broadband (BDH), airlines, and internet stocks were among last weeks big winners. Tech stocks are often leading indicators. Banks, energy, and utilities were among the poor performers.
In summary, given that the string of Nasdaq lower tops has been broken (I’m calling 3/17 a top, but begging for a little grace with that definition) I am inclined to buy on dips, and am more inclined to look for buying opportunities than for short candidates, unless the SPX approaches 1160 or the Naz approaches 2150, at which time short positions will be more attractive. I don’t think that SPX 1160 will be easily broken. Earnings season usually brings relief from uncertainty, so I expect that we’ll soon see the market rising. I fully expect a pullback to begin by Wednesday (earlier is likely), and then I look for an assault on the higher resistance levels in the weeks ahead. The first assault may well be turned back, but I hope to have a better idea of that outcome as the time draws nearer. The prior two weeks have been murky, but now things are lining up for a meaningful move upward (after a retreat from recent highs). Weekly composite charts and weekly VIX are among my strongest reasons for being mid-term bullish (not to mention last week’s surprising strength), while waning bull strength and strong resistance levels not far above Friday’s close are my primary reasons for hesitation.
Miscellaneous observations: It’s very easy to be paralyzed when I examine so many different metrics. One of the reasons for writing my thoughts down is that it’s all too easy for me to ignore those indicators that are contrary to what I want the market to do. Then when the market has done what it will, I end up wanting to kick myself for not seeing what was “so obvious” when nothing at all was obvious.
On an economic note, I by no means qualify as “wealthy”, but the reduction in my tax bill is substantial, and has been and will be put into home improvements, thus pumping some money back into the economy. Also, I’ve heard some indications that offshoring is slowing down, given some negative experiences that some companies have had, and the decrease in the disparity of US vs. international engineering costs.
Everything here is my own opinion only, and it’s worth what you paid for it. I’ve been known to be wrong at times. And I’ve been known to be right at least half as often as I’ve been wrong, though I haven’t kept records to support that statement |
