I am really torn by the markets this week. Some indicators for the SPX suggest that I could still get my next target closer to 1500 before we have a worthwhile correction whereas other things point to a correction in the very short term. However, I do not like the way quite a few markets came off their highs on Friday night leaving behind filled black candles which are warning signs.
New York this week has been dominated by the fall in the Transports and the price of oil. Trannies were hit by two very bad reports but they are now very oversold and at the bottom of their Bollinger band. Amazingly while the Trannies have been losing on average about 1% a day, the SPX has finished the week virtually where we were at the end of last week. This sideways action in the SPX has gone from looking like a flag to perhaps a triangle to goodness knows what. As I mentioned last week, the risks are now higher than at any time since the 2007/2008 top but we have seen such amazing strength in this market for months against all sorts of head winds. It is possible that the SPX is still doing some sort of Fourth wave. I think once the Transports have a rally, we will be able to get a better idea on the SPX.
I have mentioned previously my Genius Index which is simply the figure I collect each week from New York as to what percentage of funds a group of managers have invested. They are now up to 82% - this is pretty high but it doesn’t necessarily mean that markets have to turn on the spot. Just a warning. And if you think this measurement of investment isn’t important, then bear in mind that at the bottom in October last year, this group of geniuses were net short – and hence the name of my indicator.
Have a short term timing line coming through next weekend. Should know more by then.
Above I said that, oil also attracted a lot of attention early this week as the price fell sharply. Having been around this track a few times, it is hard not to think that it would be beneficial to get the price of oil down and hence the petrol pump price a wee bit better prior to the U.S. election. However, I must focus on my charts and at this stage oil has come back to its first support but if they try hard enough they could get it back to the bottom of the upslanting wedge at around 88.
The other commodities haven’t done much in line with stocks. Interestingly, our gold index roared up to its downtrend and hit a brick wall. Mentioned above how market movements in Friday’s trading left black candles – unfortunately despite hitting a new high for the move early in trading, it was many of the gold associated markets that left some of the worst black candles. This suggests an even greater chance of a correction. At the same time, I put a lot of importance on the ratio of gold to silver – it was the pattern developing in this ratio that got me so excited about the prospects for precious metals before this move got under way. I said at that time, this ratio works well at major bottoms but I am a little uneasy at the moment on the short term outlook. Silver has started to lag in momentum which I think, again, increases the probabilities of a correction.
Australia has done pretty well this week considering that New York has continued in its tight little band. There has been quite a bit of attention given to the bottom end of our market. This raises the question in the mind of a lot of us who follow these things... is this speculation in little miners the end of the move? But there is a “what if” here. I always like to ask a “what if” to think outside the square. What if this speculation in little miners is a sign that there is a lot of money on the sidelines that is just dying to have a go at the market. If this is the case, when we finally break topside, there is a real possibility that there may well be a very big rush by investors to put some of the cash that is on the sidelines, to work. I don’t know the answer but I am sure that we are going to get some idea very soon. But I do think if we come back here and then have another go at our highs, it will break out and then I think Australia could very well do a very big catch up.
Looking at some of my main indicator charts for Australia – virtually no change but a couple stand out. STW (ETF on our market) has me glued to the screen. This is tantalisingly close to breaking out but showing overbought on some indicators. Such a fabulous chart and I am hoping that eventually it will prove to be a very well defined bottom.
MQG tried to break its downtrend from the 2007 high but came back to close right on it. Honestly, how do these stocks know where the downtrend comes through?
The XTL (Twenty Leaders) is also so close to breaking its downtrend from the 2007 high. I focus on this index because it covers all the big weightings in our markets and is where the big money heads first. From a charting point of view, it would probably look better if it came off a bit and then we could have a real go at the downtrend. So another one that will be on the front line this week.
To sum up – still nothing confirmed but after trading in New York on Friday I am tending more towards a correction. Then it will be just a matter of gauging how deep. But at the end of all this Rambling, I still think the markets are ultimately headed considerably higher, possibly into the New Year and if commodities behave as I suspect, then Australia will be right in the middle of it all.
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