Dow Jones Reprints: This copy is for your personal, non-commerical use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool on any article or visit www.djreprints.com
ANYONE READING ONLY economic news reports would think the stock market should be a lot lower than it is today.
But as the technical analysis textbooks say, what matters is what the market is actually doing. Led by big technology stocks, what the market is doing since Labor Day is rising (see Chart 1).
Chart 1
As the saying goes, trade what you see.
The prospects of further action by the Federal Reserve got traders excited as an open spigot of liquidity usually is all it takes to get stocks moving higher. And positive reports in the young earnings season justify the gains to many. Still, it is hard to get too excited over the prospects for an extended bull market.
Gold blew through my initial upside target of $1,350 per ounce to an intraday high Thursday of $1,381 before backing down a bit. It is easy to credit the very weak U.S. dollar for new highs in gold as the two often trade opposite one another. But even priced in other currencies, including the smoking hot Australian dollar, we still see a long-term gold bull market in place.
This cannot be good for stocks in the long run. Investors are flocking to a nonincome-producing asset that actually costs money to store, which suggests a huge lack of confidence in the economy and paper assets.
Investors, nevertheless, continue to seek the safety of U.S. Treasury securities as well. Skeptics call this market a bubble as it does not seem to make sense from a risk/reward point of view. Interest rates are paltry, and the charts show a good deal of downside room should the market start to fall.
What is disturbing is that the benchmark 10-year Treasury note as well as the iShares Trust Barclays 7-10 Year Treasury Bond Fund (ticker: IEF) are within spitting distance of their respective December 2008 peaks (see Chart 2). And shorter Treasury maturities have eclipsed their respective 2008 price highs, meaning their yields have set new lows.
Chart 2
This is the background condition that I believe will cause major problems at some point. But for now, the loss of leadership in high-flying technology names in the "cloud computing" group, such as Citrix Systems (CTXS) and F5 Networks (FFIV), has not damaged the bull as new leadership has emerged. For example, agricultural stocks smashed through resistance last week to set two-year highs in many cases (see Getting Technical, "Ag Stocks Continue to Grow Taller," Oct.12, 2010.)
Dan Zanger, editor of ChartPattern.com, says that leaders are marching ahead with many breaking higher from technical bases. Specific mentions included notable names such as Apple (AAPL) and Chinese Internet leader Baidu (BIDU). Wynn Resorts (WYNN), a casino and hotel operator, just moved higher from a five-month trading range to a fresh 52-week high.
Jim Busch, senior managing analyst for Briefing.com, says that money fleeing the highflyers is taking interest in the quality emerging-markets new issue segment. He says that it is "part of the larger theme of investor appetite for Chinese stocks and new, reasonably-priced ideas that haven't already been running for six-to-12 months."
Basically, the market found new leadership to replace the old. The short-term trend will remain up as long as the liquidity pumps are working, but investors should not assume that the buy-and-hold strategy is back from the dead. One day, the pumps will run dry.
Getting Technical Mailbag:Send your questions on technical analysis to us at online.editors@barrons.com. We'll cover as many as we can, but please remember that we cannot give investment advice.
Michael Kahn, mutual fund co-manager, author of three books on technical analysis, former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, also blogs at www.quicktakespro.com/blog.
Comments? E-mail us at online.editors@barrons.com
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com
Yahoo! Buzz
MySpace
Digg
del.icio.us
NewsVine
StumbleUpon
Mixx
The PC makers must either cut prices or lose market share.
The retailer's shares will likely continue to lag.
Morgan Keegan downgraded the bank to Market Perform from Outperform.
Credit Suisse likes MEMC, Daqo, GCL, OCI and Wacker.
JMP Securities downgraded the discount retailer to Market Perform.
Shares of the glass-bottle maker should benefit from the company's wide moat and global expansion opportunities.
The banking giant's quarterly results didn't wow investors, but we think shares are priced to buy.
Ticonderoga suggests Atheros, Mellanox and others.
Sandler O'Neill downgraded the asset manager to Hold from Buy.
Credit Suisse says Oracle isn't recognized for the disruptive force it is.
The software giant's Windows Phone 7 may be compelling to users.
Shares of pipeline company Spectra Energy can benefit even with continued weak natural-gas prices.
A bullish J.P. Morgan report is lifting the office supply chain's stock but we think investors should stay away.
Sterne Agee likes First Commonwealth, The Bancorp and Viewpoint.
These firms get excellent results with moderate CEO pay. (At SmartMoney.com.)
Alliance-Bernstein got hit worse than most of its rivals in the financial crisis. Can a new CEO turn it around?
The idea of a Plaza II Accord to avert a currency war would do more harm than good—disrupting trade, stoking inflation and weakening economies worldwide.
Read Full Article »