There are too many bears lurking in the corners insisting that the market is going to have a deep correction. While we are in agreement that a correction is due and that the action of the tape has not been particularly bullish, we believe that there is more room to the upside. Yes, September is the generally the worst month of the year but there have been years when September has been okay. We continue to believe that once the buy-the-dip crowd thins out that we will have a greater chance for the deep correction everybody is talking about. It is interesting to note that there isn’t a lot of downside pressure, give all the bearish growls. Given all the talk of a correction it seems that it is all talk and no action. The sentiment indicators support that finding. For that matter, there isn’t a lot of upside pressure either. It appears that those who are long are just hanging on there and not really adding to positions. It has been a very boring dull market and as most players know, you never short a dull market.
We can expect to see the markets perk up a bit as we enter the last quarter of 2014. The turmoil in the globe has really not affected the US markets. Remember after the initial shock of a war, or turmoil we forget the news blurb in about two weeks. Then, as the problems continue they have less and less effect on the markets as we get used to the problems. It is a simple example of the decay of the arc. Now, should a major bank or institution go belly up, there would be more chaos in our markets. Black swans generally occur as a result of a major event. That said, we cannot predict major event, all we need is a few lunatics with power and money. This, alas, is part of the nature of humans. We can cure some diseases but cannot fix the metal status of the deranged especially when they herd together. The problem the US and other countries face is that these people are groups and it is difficult to declare war on a group that is nomadic.
The S&P 500 closed the Friday session adding two points on the day after printing a new life of contract high. The action of the day left a true doji candlestick on the chart. (Doji = open and close are the same) It is thought that a doji indicates indecision insomuch as when the bulls were in charge they could not carry the trade higher and when the bears took the trade, they also failed at pressing the market to a lower close. The day showed a stalemate between bulls and bears. This action is on of transition. Many times it indicates that the market is about to change directions. Alas, doji’s do not have a great track record but they do illustrate indecision in the market. We would caution that should the S&P close below 1987.50 there could be some nervousness return to a very complacent market. The last time we became this overbought was May and that run lasted 15 trading days. If we were to believe that the same action will be repeated, that would bring us to September 8th as the beginning of the minor correction. The 5-period exponential moving average is 1995.89. The top of the Bollinger Band is 2024.66 and the lower edge is seen at 1895.93. We are above the Ichimoku Clouds for all time-frames. The daily 1% by 3-box point and figure chart has an upside target of 2371.33. There is absolutely nothing negative to report on this chart. Yes, we are overbought but can remain in that condition for a while. The 60 minute 0.1% by 3-box chart has both upside and downside targets. The upside target is 2030.82, and certainly looks achievable, that said, the downside target is 1972.80. The point and figure chart does show some congestion here. Conservative advice is to keep your stops tight and if you are elected, build up the cash, if not, let the profits ride.
The NASDAQ 100 did print a new high for the year in the Friday session. Both this index and the S&P 500 look like they are forming a rounding top, that said, the market could be just backing and filling. All the indicators that we watch are overbought, that said, they can remain overbought (bullishly overbought) for some time. These indicators are just a warning not a signal, they tell you to remain alert. The longer up trending channel lines are 3979.11 and 4158.33, the shorter up trending channel lines are 4062.00 and 4159.70. The 5-period exponential moving average is 4069.82. The top of the Bollinger Band is 4144.60 and the lower edge is found at 3821.16. We are above the Ichimoku Clouds for all time-frames. The point and figure chart shows that the new high was printed on light volume and that the market is breaking to the upside. The daily 1% by 3-box point and figure chart looks positive. The 60 minute 0.1% by 3-box point and figure chart has an upside target of 4141.6 and a downside target of 4023.28. This chart looks congested. The Bollinger Bands on the chart are becoming very narrow warning us that something is about to happen. The weekly and monthly candlestick charts also look positive and are overbought for all time-frames. Again we can remain overbought for some time; it only serves to send an alert signal not a sell-signal. Use your trendlines to help make decisions. Also do not ignore horizontal lines which will give you good levels.
The Russell 2000 enjoyed a holiday inspired rally in the Friday session. This lightly traded session saw both the S&P 500 and the NASDAQ 100 print highs for the year. The Russell 2000 did enjoy a rally but it wasn’t even close to a high for the week let alone a high for the year. The trend is currently to the upside. The up trending channel lines are 1151.30 and 1182.91. The 5-period exponential moving average is 1168.37. The top of the Bollinger Band is at 1184.46 and the lower edge is seen at 1108.80. Both the stochastic indicator and the RSI continue to point higher but our own indicator has just issued a sell-signal. Remember, the trend is your friend so do not fight the tape. If you have investments to make, this index is not the place to look. It is underperforming the other indices and unless the economic growth becomes more robust, avoids this index. We are above the Ichimoku Clouds for all time-frames.
Crude oil rallied 1.29 in the Friday session. We noticed that the Bollinger Bands are beginning to expand from their recent contraction. The 5-period exponential moving average is 94.59. The top of the Bollinger Band is 96.58 and the lower edge is seen at 92.52. The up trending channel lines are 93.63 and 95.99. The horizontal line of resistance is 96.68. We would have liked to see more volume on the upside but given the light pre-holiday session, it was respectable. Our own indicator continues to issue a buy-signal. Both the stochastic indicator and the RSI are in agreement with that find. The longer term downtrend line is 97.08. If we were short, our first alert to cover would be triggered by crossing above the downtrend line then the horizontal line and the upper channel line. By that time, we would have surely covered. We are not short crude oil. Our trigger to go long is two closes above 96.67. The daily 1% by 3-box point and figure chart continues to have a downside target of 80.49. We are above the uptrend line but need to see more action to the upside to confirm the direction. The 60 minute 0.1% by 3-box point and figure chart looks extremely positive. This chart shows a rounding bottom, time will tell. The monthly candlestick chart continues to coil.
Gold retreated in the Friday session losing 2.40 on the day. We are below the Ichimoku Clouds for all time-frames. The candlestick formed in the Friday session was an inside day. Because it was a pre-holiday session, we take that with a grain of salt. The short uptrend line is 1283.20. The slightly longer uptrend line is 1277.37. The downtrend line is seen at 1295.40. The result of these findings are: if the market can close above the downtrend line, 1295.40, for two days, go long, if it closes below the short uptrend line, 1283.20, go short and cover at the longer uptrend line at 1277.37. The 5-period exponential moving average is 1286.46. The top of the Bollinger Band is 1321.97 and the lower edge is seen at 1270.94. Both the weekly and the monthly charts look as though they are coiling. The downtrend line and the uptrend line meet at a point of inflection on September 8th at 1281. The market needs to stay in between the uptrend and downtrend for this to occur. The result of a point of inflection is a volatile move to either upside or the downside. You been warned! The Market Profile chart shows that we closed near the wide bulge on the bell-shaped curve. The daily 1% by 3-box point and figure chart has a downside target of 1113.19 and seems to be in a congestion area, this finding is confirmed by the 0.1% by 3-box point and figure chart.
The US Dollar Index continued its march to the upside aided by global chaos, closing the Friday session at our uptrend line, 82.76. The Bollinger Bands have come together this past week as the market took pause. The upper band is 82.94 and the lower band is 80.99. The 20-period simple moving average is 81.97, the 5-period exponential moving average is 82.63 and the index is above both. The RSI is currently going flat and our own indicator is not currently issuing a signal. Looking to the daily chart, the next immediate stop for the index is 83 in change while 82.37 and 82 below that should keep this market in check. Looking to the weekly chart we can see, should the index continue its march to the upside, 83.19 as a likely target for the week ahead with 83.59 the resistance level beyond that. The 30 minute .05 x 3 point and figure chart shows multiple internal uptrend lines complementing the main uptrend along and a continued activated upside target at 84.15. This market will likely rally to 83 in the immediate future and should things continue to blow up around the world, make its way to 83.37.
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