What's the Fed Doing? Maybe He's Running Out of Ammo.
A Few Names to Take This Market Higher - You Might Be Surprised
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Day two of a pretty fierce rally to start the New Year appears to be getting some follow through this morning with the markets continuing to climb off yesterday's base. Like we said yesterday, there's a strong likelihood we'll see at least another day or two of strength to close out the week before the shorts are going to come in and test the indexes as they move toward their September highs. The S&P 500 is closer to testing its September highs than its NASDAQ and DOW counterparts. Basically, there's more strength in the most conservative aspect of the markets to start off the year, which doesn't surprise since the NASDAQ and the S&P continue to trade off better days when the markets decide to move higher like they did yesterday.
We'll reiterate our longer-term stance on this market is very bullish. We have no clear signs or indications this market is moving dramatically lower in the months ahead. The most we could hope for at this point is a favorable pullback to allow for nice positioning when the markets do decide to break out and make new highs. I know it doesn't make much fundamental sense right now, however, you've probably heard us say on more than one occasion, the markets are very efficient and often knows what's coming well before the general investing population. This is precisely why we continue to emphasize the importance of not getting all wrapped up in the fiscal cliff issue, but instead keep our eyes focused on what the charts are telling us.
It was pretty common knowledge Congress would appease the American population with some sort of deal prior to the end of the year or shortly after the New Year. And, that's what they did... sort of, but they're most definitely going to continue to wrestle with the much more important issues of monetary policy and spending. It will be interesting see how involved the media gets with that aspect of the negotiations. I suspect unless they have something bigger and better to assist ratings, we're going to continue to hear about it. Quite honestly, until we see these markets actually confirm signals they want to move lower, we're likely going to continue to climb a wall of worry and move higher. I've included a weekly chart of the NASDAQ Comp. here showing you yesterday's move was no joke. Yes, we suspect we'll run into some potential short-term weakness around 3135 or so on the Comp., but let's not confuse that with the longer-term picture. Even if the markets experience some significant resistance in the short-term, the end result sure looks like we're going to take out the September highs at some point. You can see in this weekly chart of the Composite yesterday's move did wonders for the bullish technical picture. I've also pointed out a pretty long-term channel we're seeing the NASDAQ trade in. The channel clearly suggests higher levels, but not without volatility. That's a perfect environment for us.
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We hope you're having an excellent Holiday Season. Since Santa was a pretty busy guy over the last couple of days, it doesn't appear he's paid too much attention to the markets of late. Makes sense. He can't do it all, right? Looks like he decided to send the markets their gifts earlier in December so he could focus on those less fortunate families around the Holidays. When I walked through the door yesterday, one of my family members greeted me with a "Merry Cliff-mas." Obviously referring to the fiscal cliff. Pretty clever comment I suppose. I couldn't avoid the conversation of the fiscal cliff even on Christmas Day!
If you're new to our newsletter, we've been saying for quite some time the importance of the fiscal cliff doesn't really appear to be the main focus of the markets right now even though the media is hanging on to every word coming from either side of the aisle, and making every attempt to sensationalize the potential repercussions of all of the political jostling that appears to be taking place. CNBC even has a New Year's countdown calendar on the screen all day long. Really? Let's remember one thing... the media doesn't care if they continue to scare the living daylights out of Americans over this whole fiscal cliff issue as long as they get their ratings. And, since the Holiday season is typically the slowest time of year for their news food, they're likely going to continue to make a bigger and bigger deal out of the whole scenario. We've said it enough times before, whether a deal gets done before the end of the year or next month, it isn't going to make a fundamental difference. They're going to get something done.
It's also important to remember although many investors think the markets are tied directly to every pulse of the current state of the economy, that simply isn't the case. The markets are extremely dynamic in the sense there's a lot of speculation and moving of money based on what's going to happen three to six months down the road. If you're willing to set all the noise aside and pay attention to what's actually happening in the markets, you can often have a pretty good indication of what's to come. With that being said, we're utilizing the current weakness in the markets to assess and dissect whether or not we're going to see new highs in the months ahead, or new lows.
Markets Aren't Half as Important as Family and Friends
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Good morning all. We're seeing continued weakness across all of the indexes with a short trading day and the beginning of a new options period. If you've entered into some put options per our suggestion early last week, you're doing just fine, and there's doesn't appear to be any reason to close them out at this point unless you simply want to lock in some profits here before the end of the year. With the DOW leading the charge lower, the S&P close behind and the NASDAQ being the strongest of the bunch, it's all very logical as the major indexes work their way toward their first logical retracement levels of the complete move up that started back in mid-November.
Just to recap what's been going on of late, the NASDAQ Composite finally ran into a headwind after hitting its 5/8 retracement of the selloff that started back in late September. Once the leading indicator for stocks over the last four years or so achieved its most logical resistance level, the rest of the markets followed suit, and have since moved lower in tandem. Like we always say, nothing typically ever goes up in a straight line, so a little backing and filling should always be a welcomed event. It allows us to better assess what these markets want to do on more of a longer-term basis. I've included a daily chart of the Composite here so you can see exactly what we're referring to.
As it stands right now, the Composite is going to give its best shot to try and stay in rally mode with its continued pattern of volatility, which has been sharp moves higher after fairly extreme moves lower on a day-to-day basis. However, I suspect the recent top the indexes started developing earlier last week is going to serve as the markets' first big test as to whether or not they've finished moving lower or not. I've drawn some retracement lines in the daily chart of the Comp. here which shows you the first line in the sand sits roughly around 2966 with the more important 5/8 retracement level sitting around 2906. A complete 5/8 retracement of the November to December rally would result in roughly a hundred point move lower from where it's at now.