thursday update

SHORT TERM: market loses its early gains after the FED statement.
Stocks opened mixed this morning, and after vacillating around SPX 1505 for a couple of hours it started to move higher. Nearing the FED’s economic report card the SPX hit 1513. At 2:15 the FED reported to leave interest rates as is, pending the usual further incoming data. However, the tone of the report sounded a bit less accommodative.
 
"Economic growth appears to have been moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters. Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures. In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected."
 
The market responded with its usual volatility. Only this time it was swinging 6-8 SPX points about every 20 minutes. Within the first few minutes after the news release the SPX hit 1515. That was the high for the day. Then the market pulled back into the close. Bonds were about 1/4 point lower, Crude was up 70 cents, Gold rallied $7.00, and the Euro was higher. At the close the SPX/DOW were 0.05% lower, and the NDX/NAZ were mixed. The SPX held support today at 1505, now resistance is at 1522, and lower support at 1493. Short term momentum was quite overbought today, and has now pulled back to neutral. The continuation of yesterday’s rally off the double bottom, still looks positive short term. A FOMC meeting is usually a two day "volatility" event, expecting more of the same tomorrow.
Since the Techs continue to support the market, we decided to make a closer examination of the NDX/NAZ. Our initial view was that the uptrend has continued, despite the downside pressure in the cyclicals. The NDX/NAZ continued to make higher lows, while the SPX/DOW were heading lower. However, upon closer examination of the rally from the end of May lows, wave 4. A potential diagonal triangle wave 5 might be unfolding. This market is certainly full of land mines! This potential rising wedge is illustrated in the NDXdaily chart below. If the NDX can break through the upper trendline solidly, then the entire market could enter an uptrend extension. If the lower trendline is seriously broken to the downside, the correction we have been anticipating should be underway. It would be an interesting alternation of events, if the NDX formed a diagonal triangle while the SPX was trying to break down. During the last uptrend it was exactly the opposite, exactly. This market is certainly an interesting exercise in probabilities. Best to your evening!
MEDIUM TERM: remaining neutral
LONG TERM: bullish.           
 
 
 
 

About tony caldaro

Investor
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8 Responses to thursday update

  1. tony says:

    Hi Steve,
     
    The Techs don\’t mind inflation or high interest rates, watch only growth.
    The Cyclicals respond to both, and less to growth. Quite a mix right now.
    cheers!

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  2. tony says:

    Hi Peter,
     
    I\’m certainly no expert in Bonds. Leaving that to others.
    But the stock indices do appear to be setting up quite nicely.
    A break of NDX 1900 should bring on the correction.

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  3. tony says:

    Hi Roger,
     
    That\’s about the parameters I set this morning in the blog.
    NDX 1954, btw, happens to be a long term EW pivot point.

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  4. Steve Osborne says:

    This would be a good time to cash in your profits if you bought bonds anytime in the past couple of weeks.  This post-FOMC morning is showing oil and stocks going up, and bonds also going up which is not a sustainable mix.  Bonds will probably have to dip before resumeing their uptrend.  I was going to say "resume their uptrend once stocks fall again" but parameters easily change after major Fed events or employment reports. My suggestion is lets look at the charts during the next few days and see if stocks can tolerate oil above $70.

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  5. peter says:

    Hi, It may be a mistake to look to the Nasdaq for guidance as it seems more choppy and strange and you have it seems you have already cited it as prone to failure. My faith is further shaken to find out that The Russ 2000 does not make good impulse patterns. I would rather try to make money on bonds at some point  but here too I am getting mixed msgs from some leading authorities. In support of OEW\’s view of one more wave 5 of C down in T-Bonds:
    Gary Pollack, deutschbank. RISING RATES CAUSE MORE TREASURY SELLING so fund mgrs can reduce DURATION in Bond FUNDS (with higher rates people don\’t refinance as fast or sell houses to pay off old mtg\’s so duration increases in fund)..link below
    http://www.bloomberg.com/apps/news?pid=20601009&sid=asjGCxGPnhUY&refer=bond
     
    Lehman senior economist Andy Macus is generally positive on equities in this terrific video and thinks subprime problems mostly behind us http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vBKrOsWPyx90.asf
    saying \’enough people will refinance ok or go from being bad mortgage payers to good rent payers. Overall consumer spending is ok as long as employment strong.\’
     Morningstar\’s Bond Manager award winner for 2006, TCW\’s Gundlach, says subprime is a big disaster & is getting worse in this article
    http://www.marketwatch.com/News/Story/Story.aspx?guid={276036DB-D52C-49BD-9174-019C09E1E331}&siteid=pva

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  6. Anonymous says:

    what is the level on NDX for uptrend line..i am looking at 1954..am i right?
     
    and i am trying to figure out the downtrend line point..it look like break below 1899 would do that?
     
    thanx
     
    Roger

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