I will keep it short today. It was an interesting day today because the Russell, which I usually do not typically discuss in this weekly article rallied all day on negative volume. This is, of course perplexing. After all, how can a market advance on net selling. Such it is with modern markets. There was a sell off near the close indicating long liquidation. Unless we see some new buying Monday fairly early on, I will expect more selling and continuation of the trend of the last several days.
We are still trading above a high volume area as depicted in the right most chart below:
If we can manage to break this 1315 area, there will be limited resistance to further downside movement. On the left you can see the trend and successive lower value areas as contained in the cyan and coral dotted lines.
As previously mentioned, we are entering a time of year that is often the most bearish on a seasonal basis (starting mid June). This period is often associated with larger ranges and somewhat of a downside bias. We have already been expanding on a range basis with current weekly ranges near 51 points or so (down a bit from last week). The Monthly range has expanded however, as past values dropped off the average. This indicated and expansion over the last 3 months.
The longer term monthly cycle is turning south and we will expect some continuation of this larger cycle going downward. However, under the current circumstances, it may take substantial effort to get too bearish. This is largely due to continued weakness overseas and where many are trying to liquidate their Euros. This will likely be bullish for the US markets as money seeks "safety." Beware of this buying keeping our market from heading too much lower unless circumstances change for more European stability going forward. We had some significantly bearish reports this last week which helped push us lower. This being said, the market is largely news and report driven.
As a result, it is recommended to keep an eye on reports. This last week has been fairly busy on the report front. Next week will also be fairly busy. This suggests some potential for volatility. Monday we have new home sales. Tuesday Consumer Confidence and Manufacturing. Wednesday, durable good and pending home sales. Thursday, unemployment claims. Friday, Personal spending and income, Chicago PMI and U of M consumer sentiment.
This will be a lot for traders to chew on. Any of these reports not meeting expectations could send us further downward. Or, simply meeting expectation, upward.
As ranges increase, so does effective leverage. It may not be a bad thing to decrease exposure going into the coming months as range expansion may dictate.
Next week I expect we will do some testing lower. As I mentioned, see what Monday AM brings. I will keep my trading short term in nature as I have discussed in previous weeks. Trying to trade following reports in the ensuing volatility and sometimes quite obvious bias off the reports. If you see numbers not being met, it is usually going to get some action/play. From there it becomes a matter of good trade placement and position management.
Speaking of trade placement and position management. I posted a basic description of all the Nindicator tools this week for your perusal. Take a look here.
Did you know 20% of the population of the USA is on food stamps? Did you know the government has farmed out the management of the food stamp program to JP Morgan, who is now in the business of profiting on poverty. That's right, there is a new industry in America that is very profitable; poverty. Imagine that.
Let's take a look at the cycles:
The Monthly cycle chart on the left is still showing a rolling over to the downside. The weekly is still up, but we did manage to trade downward consistent with the bigger cycle this week. You can see on the right hand weekly chart that the volume was average. The monthly range is now 97 points and expanding as previously mentioned. Expanding volatility is often associated with downtrends. It often proceeds it as well. For example. Note on the weekly chart that the ranges expanded well in advance of the top in early April. Can you see it? Here it is marked out so you can see it better:
See how the slope of the range increased going into the week of April 6th's high? I marked it between the vertical lines with the magenta line above the range reading.
There are lots of fun tidbits of technical wizardry buried in these cycle charts. That is why I use them.
Speaking of wizardry. Did you know that record numbers of Americans are going on permanent disability? This likely makes the unemployment numbers look (way) better than they really are according to some sources, such the Business Insider: Since mid-2010, precisely the time millions of US citizens used up all of their 99 week of unemployment insurance, disability claims have risen by 2.2 million. Those on disability are not counted in the workforce and are not considered unemployed.
The government does not openly report these dismal numbers which I believe helps to obscures the real state of the economy. After all, it is an election year, how can things be bad :-)
Now I have a chance to apply some of my own wizardry for next week. I see us testing lower into the 1303-1305 area and to the upside into the 1335-1336 area. If we manage to get some bad reports, the longer term point of control is at the 1298 area. This should provide some level of stopping power. If we get benign reports, the 1357 area where we still have a remaining Virgin point of control.
In addition to keeping an eye on reports, be sure to follow the Daily Value Area Reports on the blog as well as the Daily Targets.
I said I'd keep it short :-)
Thanks for supporting the blog, and have a great weekend.