From: Fallondpicks.com
Taken from my parent site: Fallondpicks.com
We are starting to see a series of gaps appear in the tech markets [NASDAQ and NASDAQ 100] which is often a sign of exhaustion runs. The increase in volume is another sign a rabid buying; soon buyers will run out of ladder rungs to climb. Friday's black candlesticks in both tech indices are common tops under these conditions; when bulls are unable to maintain early day enthusiasm and succumb to selling pressure as the trading day wears on. The lack of consolidation in these markets makes finding support harder to define. At least for the NASDAQ 100 there is clear support at 1,628, for the NASDAQ it is nearby at 2,219 but it won't take much selling pressure to break this support. At least on the technical front there is no immediate sign of weakness; MACD, on-balance-volume, and slow stochastics are strong with no hint yet of bearish divergence (which will need a retracement and higher high in the market, and lower high in the technical indicators - so this in itself is bullish). The semiconductor index added its weight for support with a solid break of resistance as secondary tech indicators [$NASI, $NAA50 and $BPCOMPQ] remain healthy.
The large caps continued their advance. Both the Dow and S&P sit in clear air, breaking outstanding resistance without the runaway gaps of the tech indices. There is more substance to the buying and there could be further support as money rotates from tech issues to more 'low risk' large caps. Small caps still have work to do; the Russell 2000 closed the week above channel resistance, but there isn't the same level of demand as there is for large caps, or techs. Bulls need to tread carefully here. There is no bull market without leadership from the small caps; large cap rallies come in mature, late cycle bull markets - such as we have now.
It doesn't take more than a quick scan of the headlines to see the various pressures acting on the market: [1] higher commodity prices - not just in oil, gold, or sliver - take look at copper prices; the raw material of the tech industries, there is little sign of a slow down here and it will impact on the bottom line in term of earnings and consumer pricing, [2] weak government - markets hate one-party politics, next years elections should see Democrats take control of the House and markets will react positively to the news - but that's a year away, [3] excessive government spending - Iraq, and Katrina relief, will be a constant drain on limited resources, unless the printing presses start rolling overtime which will add to [4] inflation - not the government speak version, real inflation; think of the costs of cinema tickets, eating a meal out, airline fares (do you really think the airlines are going to drop the oil surcharge?), CD prices, public transport tickets, even the humble stamp price. Too many dumb people in power, and too many spinsters to spread the word that everything is fine. Don't believe the hype, which leads to [5] rising interest rates, even if the Fed stops raising rates don't expect everyone's pains to go away. Mortgage's still have to be paid and salaries are unlikely to rise fast enough to cover the increase. Add to that a credit-consumer society, and an ever expanding demand servicing monthly contracts (mobile phone, cable, utilities) and it is not to hard to see where the cash crunch will come from. Now ask yourself where do markets go from here?
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There will always be opportunities to make money, but it will likely not be in the sectors the TV hypsters want you to believe it will be. Commodity-based securities remain the best bet for the long haul as an investment (i.e. for retirement accounts). Alternative energy and biotech should also be strong and a good area for speculators. Big pharmaceutical companies will rebound for those who prefer large cap stocks. Going back to commodities, commodity prices are very close to hitting a '4-year cycle top' (oil may have done so already). If you look at the long term charts for gold and oil, you will see oil started its run from early 1999, whereas gold started its move in 2001. Prices in these commodities could retrace substantially (fibonacci retracements up to 62%) over the next '4-year cycle' period - this should not be viewed as the end-of-the-line, but as probably the best opportunity to accumulate stocks in these sectors for the next (likely largest) leg of the rally. A hurt world economy will take its toll on commodity demand and lead to falling prices, but once the various players start ramping up production it will become a race to buy ever scarcer (and more costly to extract) raw materials.
We are starting to see a series of gaps appear in the tech markets [NASDAQ and NASDAQ 100] which is often a sign of exhaustion runs. The increase in volume is another sign a rabid buying; soon buyers will run out of ladder rungs to climb. Friday's black candlesticks in both tech indices are common tops under these conditions; when bulls are unable to maintain early day enthusiasm and succumb to selling pressure as the trading day wears on. The lack of consolidation in these markets makes finding support harder to define. At least for the NASDAQ 100 there is clear support at 1,628, for the NASDAQ it is nearby at 2,219 but it won't take much selling pressure to break this support. At least on the technical front there is no immediate sign of weakness; MACD, on-balance-volume, and slow stochastics are strong with no hint yet of bearish divergence (which will need a retracement and higher high in the market, and lower high in the technical indicators - so this in itself is bullish). The semiconductor index added its weight for support with a solid break of resistance as secondary tech indicators [$NASI, $NAA50 and $BPCOMPQ] remain healthy.
The large caps continued their advance. Both the Dow and S&P sit in clear air, breaking outstanding resistance without the runaway gaps of the tech indices. There is more substance to the buying and there could be further support as money rotates from tech issues to more 'low risk' large caps. Small caps still have work to do; the Russell 2000 closed the week above channel resistance, but there isn't the same level of demand as there is for large caps, or techs. Bulls need to tread carefully here. There is no bull market without leadership from the small caps; large cap rallies come in mature, late cycle bull markets - such as we have now.
It doesn't take more than a quick scan of the headlines to see the various pressures acting on the market: [1] higher commodity prices - not just in oil, gold, or sliver - take look at copper prices; the raw material of the tech industries, there is little sign of a slow down here and it will impact on the bottom line in term of earnings and consumer pricing, [2] weak government - markets hate one-party politics, next years elections should see Democrats take control of the House and markets will react positively to the news - but that's a year away, [3] excessive government spending - Iraq, and Katrina relief, will be a constant drain on limited resources, unless the printing presses start rolling overtime which will add to [4] inflation - not the government speak version, real inflation; think of the costs of cinema tickets, eating a meal out, airline fares (do you really think the airlines are going to drop the oil surcharge?), CD prices, public transport tickets, even the humble stamp price. Too many dumb people in power, and too many spinsters to spread the word that everything is fine. Don't believe the hype, which leads to [5] rising interest rates, even if the Fed stops raising rates don't expect everyone's pains to go away. Mortgage's still have to be paid and salaries are unlikely to rise fast enough to cover the increase. Add to that a credit-consumer society, and an ever expanding demand servicing monthly contracts (mobile phone, cable, utilities) and it is not to hard to see where the cash crunch will come from. Now ask yourself where do markets go from here?
More/...
There will always be opportunities to make money, but it will likely not be in the sectors the TV hypsters want you to believe it will be. Commodity-based securities remain the best bet for the long haul as an investment (i.e. for retirement accounts). Alternative energy and biotech should also be strong and a good area for speculators. Big pharmaceutical companies will rebound for those who prefer large cap stocks. Going back to commodities, commodity prices are very close to hitting a '4-year cycle top' (oil may have done so already). If you look at the long term charts for gold and oil, you will see oil started its run from early 1999, whereas gold started its move in 2001. Prices in these commodities could retrace substantially (fibonacci retracements up to 62%) over the next '4-year cycle' period - this should not be viewed as the end-of-the-line, but as probably the best opportunity to accumulate stocks in these sectors for the next (likely largest) leg of the rally. A hurt world economy will take its toll on commodity demand and lead to falling prices, but once the various players start ramping up production it will become a race to buy ever scarcer (and more costly to extract) raw materials.
