As of 3:15 p.m. on Friday, we have four factors that tell us the odds are increasing for the market to pull back soon (Monday or Tuesday):
FACTOR ONE: RECESSION CALL
The Economic Cycle Research Institute (ECRI) has a very good track record in terms of forecasting economic downturns. You can read the full text of one of their recent press releases here - they sum up the statement this way:
It's important to understand that recession doesn't mean a bad economy "“ we've had that for years now. It means an economy that keeps worsening, because it's locked into a vicious cycle. It means that the jobless rate, already above 9%, will go much higher, and the federal budget deficit, already above a trillion dollars, will soar.
Here's what ECRI's recession call really says: if you think this is a bad economy, you haven't seen anything yet. And that has profound implications for both Main Street and Wall Street.
The ECRI analysis aligns with our work - stocks and commodities do not perform well in the early stages of a recession. The ECRI outlook also supports our current deflationary and defensive holdings.
FACTOR TWO: RESISTANCE
FACTOR THREE: SHORT-TERM BEARISH DIVERGENCES
FACTOR FOUR: VOLUME IS WEAK
With only an hour and a half left of trading on Friday, the lack of conviction behind today’s rally can be seen in the low intraday volume of the following economically sensitive ETFs. If hedge funds and institutions were interested in buying today, the volume numbers below would be at least headed for an average day. Given the scope of the recent gains, you would expect higher than average volume showing confidence in the economy and “improving” situation in Europe. The volume figures shown below are abnormally low, highlighting concerns about the economy, staying power of the current rally, and situation in Europe.
The limited interest in trading silver (SLV) on Friday and the close of 31.34 leaves the deflationary door open similar to 2008 (see article with levels to watch). According to IBD, the volume during the entire move from the October 4 low has been weak:
But volume faded 3% on the Nasdaq and 14% on the NYSE (was lower on Friday relative to Thursday), according to preliminary data. Nasdaq’s volume hasn’t hit even an average pace since Oct. 5, while the S&P 500’s trading has been below par since Oct. 4.
Could stocks continue to move higher early next week? Sure they could, but Friday’s action clearly shows the short-term momentum to the upside is slowing.
While the current rally has been very impressive, it is not out of character for a typical bear market countertrend move. More upside is quite possible with logical S&P 500 short-term reversal points coming in between Friday's close of 1,224 and 1,260. We mentioned back on August 12 a bear market rally could revisit 1,260. A move above 1,260, especially for more than two or three days, would put a dent in the bearish case. We will continue to favor the long-term trends, which remain down, and maintain a deflationary bias. We will also monitor the markets for a more observable shift to negate the longer-term bearish case. The market is rarely as good (or as bad) as it looks, especially after a vertical rally.
new TWTR.Widget({ version: 2, type: 'profile', rpp: 4, interval: 6000, width: 200, height: 300, theme: { shell: { background: '#2644bd', color: '#ffffff' }, tweets: { background: '#000000', color: '#ffffff', links: '#e6e61e' } }, features: { scrollbar: false, loop: false, live: false, hashtags: true, timestamp: true, avatars: false, behavior: 'all' } }).render().setUser('CiovaccoCapital').start();
var a2a_config = a2a_config || {}; a2a_config.linkname = "Short Takes - Financial Markets"; a2a_config.linkurl = "http://ciovaccocapital.com/wordpress/";
var a2a_config = a2a_config || {}; a2a_config.linkname = "Short Takes - Financial Markets"; a2a_config.linkurl = "http://ciovaccocapital.com/wordpress/";
Entries (RSS) Atom Feed
Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
var a2a_config = a2a_config || {}; a2a_config.linkname = "Short Takes - Financial Markets"; a2a_config.linkurl = "http://ciovaccocapital.com/wordpress/";
Entries (RSS) Atom Feed
Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). .Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
Read Full Article »