This Market Is Still In trouble
It has been a while since I have posted as those of us in the industry have had our hands full with the unprecedented volatility. We have navigated these waters successfully so far. This is a very turbulent time and if any of you thought that last week's meltdown followed by Monday's ridiculous rally marked the end of the angst, guess again.
As I have harped on many times in this space, when the government gets involved, the outcome is almost never good. While their intentions are to keep this economy out of recession at best and to prevent an economic meltdown at worst, these extraordinary conditions created by Wall Street greed have got to run their course. Bottom line, the government waited far too long to oversee, regulate (not all regulation is bad) and add serious liquidity. These type of responses should have taken place a 14 months ago when the indices melted down in August 2007. Waiting this long has allowed these problems to become ingrained into our financial system, and now it seems the only path left is to the market take care of its own problems.
So where do we stand now?
Below is a chart if the Nasdaq Composite with the Nasdaq Momentum Oscillator (blue line in the middle pane), and the 14 period RSI (Red line in bottom pane). This is a chart that I have used many times.
Notice that the Nasdaq is in a brutal downtrending channel, and that the ferocious selloff on October 6 broke the lower channel line. Whenever a channel line breaks in the direction f the trend (in this case down), that shows that the selling was overdone and that a bounce of some sort is due. Thus the seeds were planted for the ridiculous rally on Monday, October 13. The gap open on October 14 ran into resistance right at the lower channel line. It is common on channel breaks for the price action to climb back up and re-enter the channel, but in this case the market was too weak to do so. Now look in the middle pane at the Nasdaq Momentum Oscillator. It has run into resistance at precisely the level that used to be support. So we have weakness confirmed in BOTH Nasdaq price action and Nasdaq internals. Also note that the RSI (red line in the bottom pane) is in a definite downtrend. These are not good signs.
As of this afternoon (Thursday, October 16) this market looks like it wants to rally into options expiration. Given the backdrop, weak internals, and everyone hoping and praying for a bottom, it looks as if we just aren't there yet. I have minimum downside targets of 7500 in the Dow and 1500 in the Nasdaq that could be overshot if panic selling spirals out of control. I would not look for much upside in the next few weeks with perhaps the biggest election in our nation's history looming on the horizon. Both candidates have differing philosophies and the market is not certain which candidate will prevail. The market hates uncertainty, so I am looking for more volatile, weak trading through the first week of November.
If the Dow rallies to the 8800 - 9000 level, that would be a great shorting opportunity for aggressive traders only.
As I have harped on many times in this space, when the government gets involved, the outcome is almost never good. While their intentions are to keep this economy out of recession at best and to prevent an economic meltdown at worst, these extraordinary conditions created by Wall Street greed have got to run their course. Bottom line, the government waited far too long to oversee, regulate (not all regulation is bad) and add serious liquidity. These type of responses should have taken place a 14 months ago when the indices melted down in August 2007. Waiting this long has allowed these problems to become ingrained into our financial system, and now it seems the only path left is to the market take care of its own problems.
So where do we stand now?
Below is a chart if the Nasdaq Composite with the Nasdaq Momentum Oscillator (blue line in the middle pane), and the 14 period RSI (Red line in bottom pane). This is a chart that I have used many times.
Notice that the Nasdaq is in a brutal downtrending channel, and that the ferocious selloff on October 6 broke the lower channel line. Whenever a channel line breaks in the direction f the trend (in this case down), that shows that the selling was overdone and that a bounce of some sort is due. Thus the seeds were planted for the ridiculous rally on Monday, October 13. The gap open on October 14 ran into resistance right at the lower channel line. It is common on channel breaks for the price action to climb back up and re-enter the channel, but in this case the market was too weak to do so. Now look in the middle pane at the Nasdaq Momentum Oscillator. It has run into resistance at precisely the level that used to be support. So we have weakness confirmed in BOTH Nasdaq price action and Nasdaq internals. Also note that the RSI (red line in the bottom pane) is in a definite downtrend. These are not good signs.
As of this afternoon (Thursday, October 16) this market looks like it wants to rally into options expiration. Given the backdrop, weak internals, and everyone hoping and praying for a bottom, it looks as if we just aren't there yet. I have minimum downside targets of 7500 in the Dow and 1500 in the Nasdaq that could be overshot if panic selling spirals out of control. I would not look for much upside in the next few weeks with perhaps the biggest election in our nation's history looming on the horizon. Both candidates have differing philosophies and the market is not certain which candidate will prevail. The market hates uncertainty, so I am looking for more volatile, weak trading through the first week of November.
If the Dow rallies to the 8800 - 9000 level, that would be a great shorting opportunity for aggressive traders only.
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