Saturday, August 07, 2010

Market comments on the past week and looking forward.

This post today is from last Saturday, July 31st because the charts relevance is accurate as of the close of the market yesterday. The 5 year charts of the Dow and S&P500 are comparable and nothing really has changed much in that outlook. So here was that post with a few additional updates:

I have posted 2 charts this morning showing where we are relative to the longer term market trend because many of you are wondering whether we are going back up to new highs in the market. The news outlets are full of people who are predicting just that and say that the worst is over and we are ready for as breakout to the upside. My data analysis suggest that is not going to happen any time soon. I believe we are now most likely to drop over the next few months and into October, as we end Q3.

Let's look at both charts above for a moment. There are similarities in the pattern of both charts and I have added a blue downtrend line for each, which we will not go above, and also a red resistance line, also a barrier to moving higher. I know looking at a 2 month chart gives you a sense we might be going up over Dow 11,000, but I am confident that is not going to occur. We closed at Dow 10,466 yesterday (Dow 10,653 Aug. 6th) . The last 4 days have been down in the Dow, not up and while yesterday's market action for the Dow was impressive (Monday Aug. 2nd was impressive), as the Dow was up much of the day in the face of headwinds caused by a lower than expected Q2 GDP number, it still had negative distribution if you look at the Volume chart. (It was true that we had negative distribution for this week as well, if you look at the +Volume data closing Aug. 6th)

I have been disappointed that so many have been fooled by the media and aren't really giving as much weight to the economic data for the past week. There were many negative readings for the week if you check the previous post. This is not an economy in real recovery. It is weighted down by the Consumer not really seeing things better from their day to day experiences. Until that changes I am sorry but the economy won't really recover as we hope it will. We are unfortunately in this mess for years to come. My guess is at least 5 years from a Housing and Jobs point of view. More foreclosures are lining up this Fall, as Adjustable Rate Mortgages must refinance to Fixed Mortgages, over the coming 6 months to a year and which were set 5 years ago. Many of these people borrowed on their equity and assumed prices would continue to go up as they had for many decades. Unfortunately this group is most likely most vulnerable to foreclosure as they are retired people who borrowed the equity on their homes and now their homes are under water. It is so sad.

UPDATE: Sunday Aug. 1st 6:00pm PST

I changed and updated the original S&P chart from what was posted. Notice that on the S&P chart I have drawn 2 blue lines. Notice that when I connect the #2 Blue line under the last "W" pattern and extend it back over the 5 years, you can see it touches all the low points, this before the market had problems in 2008. To me the use of software program trading has resulted in patterns like this. It isn't just coincidence this happened. It is programmed to. This 2nd line does not show a similar analysis for the Dow. It is likely we will stay bound in the S&P between these 2 blue lines although the #1 blue line is not as much resistance as is the solid red horizontal line which crosses the axis at 1,190.

Update: Aug. 7, 7:15am PST

So this week the S&P, which is the more reliable Index to follow for trends, closed at 1121. There was a sell signal issued on it because a hammer pattern developed this week on Tuesday and it has not gone up since then. I am still waiting for it to reverse this last uptrend. We will not go above 1190 any time soon. Unemployment is getting worse as the data suggested yesterday. Next week CPI is reported on Thursday and to me should show a negative number, meaning deflation is here. The market expects the number will come in either +0.2% or +0.1%. Last month the data was -0.1%.

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Anonymous Anonymous said...

Grand, are you going to hold VTSS after this low ball earnings report? Thor

2:10 PM  
Blogger Charles Amico said...

Yes, I believe so Thor. I kind of suspected they would have a poor quarter and when I saw them hire the new Marketing person it was confirmed in my view. I did like to see them improve their margins. That's very important. I'll give them one or two quarters more before I consider selling.

4:15 PM  

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