It's Friday and most traders were away from their desk. That would explain the light volume and dismal price action. One thing though, if the bears were going to drive this market lower, why didn't they? Was their not an incentive to break the upcoming support level that I pointed out yesterday? If the Bears don't have a standing chance, then what case can be made for the bulls? Next week or possibly the first week of April- hedge funds, mutual funds, and small finance firms will invest the fixed income of their clients money back in the market. All money managers must stay ninety five percent invested because they compete with other firms to generate the best possible return for their clients. If you are making 6% a year on your portfolio, but your buddy has made 8%, you'll probably ask your advisor why your not seeing the same type of return. It's this constant need for a money manager to stay invested or else he or she will feel useless if their position is in cash. Trust me, I've never known a money manager who didn't feel uncomfortable when he or she is not invested. It's almost like they are not putting their skill to use. Believe it or not- cash is a position, and it may be a smart option considering how toppy this market is.
Now I've pointed out that the market is near the completion of this multi-month rally dating back since October. This time I want to bring back my indicators to give a better perspective on the Market. I've mentioned before that often times the MACD will give a smaller divergence within a larger divergence to complete a trending move. You throw that in with a potential Head and Shoulders pattern and you have a Tip toppy market. Look down below and see the chart that I have presented.
S&P 500- Daily Chart
On to the dollar! We have seen this sideways movement for several sessions, but nothing really. So I'll dive deeper and mention the moving averages for the bullish case. Below you'll see that the 20 day Ma has crossed the 50 day Ma. Since the 20 and 50 are so close to one another, they act as a confluence of support. Even though prices dipped slightly below this level today, the overall pattern is developing into an inverse head and shoulders bottom.
The U.S. Dollar- Daily Chart
We were looking for the metal to get a bounce and it finally came! Now that gold has broken out of its bullish falling wedge pattern, it could be that we rally for a few days to work off these oversold levels. Gold has been hammered for a while now and the sentiment out there tells me a short-term bottom is in. In terms of physcology, when everyone talks as if the metal is near its death bed, I find that to be actually an opportunity to pick up some shares.
GLD- Daily Chart
The last thing I want to talk about is the internal indicator known as Stocks above their 50 day MA. It reveals the participation among stocks within a specific index. I have chosen the S&P 500, and as you can see, there are fewer stocks above their 50 day MA now than there were at the October Peak. Why is this important? It means that fewer stocks are selected for purchase during this entire leg up. Once the demand dries up for the Apples of the world, where will they look to next? It won't be other stocks, it will be a liquidation process because the fundamentals of the market are questionable. The market likes good news, and it can deal with bad news, but what it can't deal with is... uncertainty.
Stocks above their 50 day Moving Average
Have a great weekend,