The Market
Technical
The
indices (DJIA 13457, S&P 1441) sold off a bit yesterday. However, both of
the Averages remained well within their (1) short term uptrends [13265-14035,
1409-1503] and (2) intermediate term uptrends [12420-17420, 1308-1908]. Note that the
S&P is right on top of its former 1442 resistance, now support
level. A break below 1442 would be the
first negative sign for stocks in some time.
Volume
picked up while breadth cratered. The
VIX spiked 9%, breaking above the upper boundary of its very short term
downtrend---that starts our time and distance discipline. Any confirmed break
could also signify the end of the current stock rally. However, it remains well
below the upper boundary of its short term downtrend.
GLD
fell fractionally, but finished above the lower boundaries of its very short
term uptrend and short term uptrend.
Bottom
line: stocks had a rough day; but one day in no way defines a trend. So the follow through becomes important. As I noted above, the first test will be the
S&P 1442 support level, followed closely by the 13302/1422 former
resistance, now support level. For the
time being, stocks remain well within their primary trends---though as I have
been documenting each day for the last couple of weeks, the Market’s internal
strength seems to be waning. I remain
focused on the Sell side (except for GLD).
Will
the Market repeat itself (medium):
The
latest Lead Lag report (medium):
Fibonacci
gets in on the act (short):
Update
from Trader Mike (short):
Market
performance in October (short):
Market
performance in post-election years (medium):
Percentage
of stocks over their 50- day moving average (short):
Fundamental
Headlines
Yesterday’s
economic news was largely positive: weekly retail sales were a plus; the Case
Shiller home price index showed another rise in prices though not quite as
strong as had been expected; the Richmond Fed manufacturing index came in much
stronger than forecast; and finally, the September consumer confidence number
was a blowout. This data gave the Market
a positive bias as the open; and it stayed that way for most of the morning.
Then,
the world got a dose of reality from Spain when a crowd (much bigger than anticipated)
protesting austerity measures being considered in the Spanish parliament got a
little rowdy---once again calling into question the likelihood that the money
for austerity trade off in the Draghi plan will work. Of course, after much of the Market
enthusiastically embraced the plan and assumed that it took EU tail risk off
the table, it is way too soon to say I told you so. Nevertheless, even if the Spanish government
manages to contain the current unrest, yesterday’s action does suggest that at
the least the tail risk has not gone away.
European
optimism fades (medium):
And
the credit markets show it (short):
Bottom
line: with stocks overvalued (as defined by our Model), the re-emergence of EU
tail risk is not likely to be greeted with joy by investors if it occurs. Yesterday’s pin action in no way suggests
that this going to happen; but it could be a warning shot. The key now as I noted in the Technical
Section is follow through.
Even if all ends
well in Madrid
That said,
remember that our forecast is for Europe to ‘muddle
through’. Where I part company with the
crowd is (1) how you value a ‘muddle through’ scenario---I happened to think
that it will be painful and long lasting and (2) the odds of this scenario not
happening [only slightly better than even] and the downside if it doesn’t.
Chart
porn on global money supply:
Quantifying
the risks to global markets (short):
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