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Never short a dull market
Stocks are giving the impression that they are getting tired, yet they
continue to slowly move their way higher. The results were
somewhat mixed again as the Dow gained another 33-points but the Nasdaq
and Transports were down.
The
S&P 500 has now been up 11 of the last 13-trading days. The Santa
Claus rally started early and seems to be staying late. As far as
negatives go, it is difficult to find them in the chart but there are
some extremes in the overbought and overly bullish area. The
S&P is now 109-points, or 11%, above the 200-day EMA.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
We could get a pop or a drop
out of this morning's jobs report, but for the most part this market
action has been rather boring. The old axiom for traders is to
never short a dull market. Markets tend to move up slowly but drop
with a thud, and right now the market is putting many to sleep.
The ones who are not sleeping well are the bears who are trying to
short this market (betting it will go down) as they are losing money
consistently.
As I said, the positive are in the charts with all of the moving
averages (EMA's) behaving well, support holding, and the trend is obviously
up.
Yesterday
we talked about
some of the extremes in the area of over bullishness in put/call ratios
and Rydex funds.
Today I want to look at a couple of very minor short-term red flags we
are seeing from the market leaders.
While the market has been moving up, the Nasdaq has actually been down
the last two days. That isn't too concerning for the long-term,
but with this index being 14% above its 200-day EMA, a reasonable
assumption could be that this high flying index is due for a pullback -
probably back to the support levels marked below.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
If those levels break we'll have to deal with that, but right now those
support lines look like good buying opportunities if you are looking for
one.
The Dow Transportation index has also been down the last two days.
The chart looks good but it too is 10% above the 200-day EMA. We
saw a breakout from a cup and handle formation in early December, a
pullback back to the breakout area, which has held, and now it has been
consolidating for the last four weeks.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
This is one of those technical analysis "if, then, else" situations.
As I said, the chart looks good and is probably in a good position to
breakout to the upside again, but if it doesn't and it falls below the
support lines, then you have to wonder if we could get another test of
the 200-day EMA, although there is other support before then.
One of the best charts I have seen lately is the housing index.
Although we have been watching this one for a while, it kind of
surprised me to see the strength over the last few weeks. The
chart broke out above that resistance area (red line) then formed a bull
flag and, doing what a bull flag does, broke out sharply to the upside.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
This is important because we have also been watching a bull flag on the
chart of the U.S. dollar.
The dollar had rallied strongly but ran into a brick wall at the 200-day
EMA a few weeks ago. Back then we said that the I-fund may be in
play again because we should see a pullback. Well, the pullback
has not been all that bad and it is actually forming a very clear bull
flag, and if it does what a bull flag does, we could see a sharp rally
higher in the near future. That means the I-fund could become the
laggard again.
Chart provided courtesy of
www.decisionpoint.com,
analysis by TSP Talk
As I mentioned we get the December jobs
report early this morning.
Estimates are in the area of a loss of 25,000 to 35,000 jobs, with an
unemployment rate of 10.0% to 10.2%. This dull week could end with
some excitement.
Thanks for reading. Have a great
weekend!
Tom Crowley
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