Investing for Survival: Monday Morning Chartology

Monday, August 4, 2014

Monday Morning Chartology

The Morning Call

8/4/14

The Market

Technical

Monday Morning Chartology

The S&P fell below its 50 day moving average and the lower boundary of its short term uptrend; and the break of the short term uptrend was confirmed. I have drawn a potential candidate for the lower boundary of a new short term trading range (horizontal brown line). It still has a ways to go before challenging its intermediate term uptrend. Even though I remain convinced that stocks are grossly overvalued, breaking a short term uptrend by no means spells the end of a bull market. So while it appears that there may be more momentum to the downside, it is far too soon to assume that this is the beginning of mean reversion.

On Friday, the long Treasury bounced hard off the lower boundary of its new short term uptrend, closing above its 50 day moving average and right on the upper boundary of its former short term trading range. This strengthens my confidence in the validity of the new short term uptrend. It also suggests that the current softness in stocks is more a function of geopolitical risk versus rising inflation pressures.

GLD continues its schizophrenic behavior. In a Market driven by either fear of inflation or geopolitical risks or both, gold normally would have been up 9 out of 10 times. Not so last week. I have no explanation for this pin action. It did manage to just close on its 50 day moving average and seems to be forming a pennant formation.

The VIX is clearly on a tear. It is well above its 50 day moving average and within a very short term uptrend. It is nearing the upper boundary of its short term uptrend. A move above that boundary would support the notion that the current downtrend in stocks is more than just a hiccup.