Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Quote of the day
" A government that robs Peter to pay Paul can always depend on the support of Paul."
~ George Bernard Shaw ~
Yesterday the major stock market averages blew through their recent hesitation and clearly stamped in a clean breakout above a trading range that goes back to May 13.
From a technical perspective the next price objective based on "completion" of the reverse-head-and-shoulders bottom would put "price" back at the market top of the cycle that occurred on April 26. While the move off the lows of late August / early September has been nearly straight up and appears extended I think we can continue to advance a bit more as we are now sailing through the trading void with a McClellan Oscillator that is still NOT registering overboughtness and is in neutral at a plus 61. Bollinger Bands have “price” right at the upper level of the spectrum and does indicate a market that is overbought. Stochastics are also suggesting that a possible market retreat is coming. (Stochastics work best in bearish technical setups so disregard the stochastics.)
Bottom line, let’s remember that "the trend is your friend" and clearly the long-term and short-term trend is now up. Additional price analysis based on both the 45 bar and nine bar moving averages is also up.
As I have been mentioning over the last five months of the wicked consolidation sentiment has been extremely bearish to moderately bearish including some near historic low postings yet the Market failed to blow through the lows. Once again, contrary sentiment that in tandem with the deeply oversold McClellan proved to give us a prescient "Be long the market" overview.
The current picture also suggests that a "short-squeeze" could fire, if indeed it isn't already underway. Yesterday’s volume increase could be the beginnings of the squeeze. It should be noted that short positions in the NYSE and NASDAQ are superhigh.
Granted, the economy is rotten, much of the Western world is mired in mind-boggling debt, unemployment is sky high, housing is a disaster and our culture seems to be posting lower and lower lows of degradation. The big picture looks hideous. But, the stock market is not the economy or the culture. So, we trudge on with a nasty taste in our mouth and high dudgeon (bordering on "rip out their throats") for the political class. Perhaps, the market senses better times ahead with a, what Gallup polls say, could be a historic turnaround in Congress with as many as 100 seats going to the Republicans.
Some McClellan Oscillator observations: the McClellan reached an oversold low of minus 426 on May 10. The Market topped out on April 26 at S&P 500 (SPX) 1219.80. Its low was on July 1 and (SPX) 1010. (The head of the reverse-head-and-shoulder.) Interesting that no time during the formation of the right-shoulder did the McClellan get below a minus and oversold 200. And on the straight up advance from the right shoulder lows of (SPX) 1040 that occurred on August 31 did the McClellan get really into the upper reaches of overboughtness, only reaching a slightly overbought high of plus 187. So, somewhere in there it's interesting that this terrific advance has NOT been matched up with high overboughtness. And importantly STILL ISN'T!
ITEMS OF NOTE:
· Asian stocks as seen by the comprehensive the MSCI Asia Index ticked its highest close since August 2008, before the bankruptcy of Lehman Brothers Holdings Inc. The index has climbed 19% from this year’s low on May 25, approaching the 20% threshold some investors consider as the beginning of a bull market, amid signs a U.S. economic recovery is stabilizing and will support global growth.
· Goldman Sachs (NYSE:GS) said that Copper will trade at $11,000 a metric ton in a year because of swelling demand. This morning the contract reached $8,326, the highest intraday price since July 14, 2008.
Key indicators and metrics:
· Yesterday's McClellan Oscillator posted a neutral plus 61
· The Treasury 10-year 2.406% lowest yield since July 2009
· 3-month $ LIBOR slides deeper to 0.290
· CBOE Put / Call Exchange Volume Ratio – 0.89
· (VIX) – 21.76
· Euro - 1.384 highest since April
· Copper - 3.755 the highest tick since July 2008
For my list of my UPDATED Best Ideas for 2010 please send an e-mail request to: Dr.Faessel@onthemar.com
Disclosure: No Position