MARKET OBSERVATIONS FOR JULY 30, 2012: The stock market threw the proverbial “curveball” at traders the last six trading sessions by going down 300 points and then returning up even more. The ideal time to have bought was intraday on Tuesday but that would have required one to perform the difficult and risky task of “catching a falling knife.”
The McClellan Summation Index looked like it was about to come crashing down on Tuesday but instead is now in a hesitation pattern, giving no clear-cut signals as to the future direction of the market. Since its time in the rally phase has been relatively short, there is still plenty of room to go up in terms of time.
Other key market indicators show the following:
For now, the best advice is to remain on the sidelines getting ready for a possible retest of last Tuesday’s low. Otherwise, expect another day of strength before a correction takes place. We will monitor the correction in order to determine if the rally has legs to it. Based on the long stretch of negative breadth days, it would not surprise us to see the stock market go into the “climb the wall of worry” phase to new highs in terms of price and several more weeks of rallying in terms of time.
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In regards to Apple (AAPL), the stock had a big one-day correction which broke the back of its recent rally. This sets up the possibility of the stock traversing its trading range towards a possible buy point in the next month. The Money Flow Indicator has a reading of 41 after hitting a short-term upside target of 80. It now has a good chance of reaching a buy signal under 20 in August. The “Full Stochastics Indicator” has already approached a buying area and is the first indicator to signal that a buyable low is not too far away in time. The price to buy Apple will probably be on the day it tests its previous low at 522 as well as the 200-day moving average which now stands around 520. I’d start making small bets on any move under 535 if that should occur. The last move down could turn out to be a brief one-hour intraday spike.
Note: The news and price action of Apple proved to be a distraction during this past week. It confirms my “Wall Street Craps Rule: Don’t Play Your Favorites.” When an investor pays too much attention to one stock, it prevents that person from reading the overall market correctly. That’s how this last buying opportunity was missed last Tuesday.
MARKET OBSERVATIONS FOR JULY 15, 2012: The stock market staged a big “relief rally” last Friday which quickly alleviated the oversold condition of the general market. In fact, the TRIN Indicator was negative 10 days in a row which is extremely one-sided in terms of breadth. The only thing that was missing from a good buy signal was a more downside action in terms of price. For more nibble traders, the ideal time to have bought was mid-day on Thursday. That bottom sets up a 5- day retest of the intraday lows that is expected around Thursday of this coming week. Be prepared to buy on weakness backed by “obvious bad news” into the Wednesday-Friday time period.
The McClellan Summation Index appears to be in a topping formation. This occurs whenever you see a cluster of dots after an extended period of advance like we’ve seen over the past month. So this indicator is preparing us for a large decline (the primary signal now) or a confusing pause before resuming the current uptrend.
Other key market indicators show the following:
- Investor Sentiment – is in the mid-range area with no clear signal
- NYSE Breadth Oscillator – gave a buy signal after Thursday’s close in the “Ultimate Indicator” – the “Full Stochastics” still need to move down to the lower parameter near -80
- Nasdaq Breadth Oscillator – also gave a buy signal after Thursday close in the “Ultimate Indicator” – the “Full Stochastics” still need to move down to the lower parameter near -80
- Risk On/Risk Off Indicator – a reading below 30 is needed for a buy signal – the current reading is only 44
For now, the best advice is to remain on the sidelines getting ready for a near term bottom in the stock market. The NYSE Breadth Oscillator and Nasdaq Breadth Oscillator have already given buy signals in the “ULT” indicator. The “5-Day Retest Pattern” tells us to be prepared to buy on weakness backed by obvious bad news into the Wednesday-Friday time period of this coming week.
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In regards to Apple (AAPL), the stock is coming off of a top at 619 and is expected to retest that high. It is anyone’s guess whether it will succeed or fail at this resistance. Sorry, but there isn’t much to say about trading this stock at this particular time. Savvy traders will stay away and let APPL set up for its next big move.
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In the event of a general stock market buy signal, prime candidates for participating on the upside include the QQQ, DIA, DDM, and SSO Exchange-Traded Funds.
MARKET OBSERVATIONS FOR JULY 11, 2012: The stock market has been in a steady decline for the past 9 sessions according to the daily TRIN indicator which reads the undercurrent in terms of breadth and volume. This sets the stage for a short-term tradable rally between July 17 and July 19 if this current trend continues in this “slow drain” (in price, breadth, and behavioral psychology) fashion.
The McClellan Summation Index appears to be topping out or setting up for one more run to the upside. For right now, I would not interpret this indicator as signaling anything in particular. (Note: Sometimes, even the best indicators do not have definitive readings.)
Other key market indicators show the following:
For now, the best advice is to remain on the sidelines getting ready for a near term bottom in the stock market. During this correction, watch the NYSE Breadth Oscillator and Nasdaq Breadth Oscillator for oversold readings in the “ULT” and “Full Stochastics” indicators for a possible short term buying opportunity. (Note: This may be only a minor movement which would call for making only small side bets on the upside.)
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In regards to Apple (AAPL), the stock has shown strength apart from the general market. In market declines, the strongest sectors tend to be the last ones to drop. The stock of Apple has become sort of an asset class all by itself! The Money Flow Indicator has a reading of 54 and has hardly moved since last week’s update. The “Full Stochastics Indicator” and the “Ultimate Indicator” have already reached overbought readings and a decline to at least the mid-range would be expected before another run to the upside begins.
In the event of a general stock market buy signal, Apple would be one of the prime candidates for participating on the upside along with the QQQ, DIA, DDM, and SSO Exchange-Traded Funds.
MARKET OBSERVATIONS FOR JULY 4, 2012: The stock market rally continued its move upwards climbing the proverbial “Wall of Worry.” It is now reaching an overbought area of resistance and is not likely to move much further on the upside without some consolidation first over the next couple of weeks.
The McClellan Summation Index continues to give a clear reading that shows a strong rally based on breadth. This indicator cuts through the market B.S. of news and opinions and lets investors see and know whether the Bulls or the Bears are in control. Right now, the Bulls are running the show!
Other key market indicators show the following:
- Investor Sentiment – is close to being in the area of “Extreme Optimism”
- NYSE Breadth Oscillator – clearly overextended and due for a breather
- Nasdaq Breadth Oscillator – not as overextended as the NYSE breadth indicator
- Risk On/Risk Off Indicator – confirms the Summation Index and indicates a major move from safety to risk. This could be a major shift from the safety of Treasury Bonds to riskier asset classes such as corporate high-yield bonds or equities.
For now, the best advice is to remain on the sidelines getting ready for a near term correction in the stock market. After a week of consolidation or lower prices, you can reasonably expect a retest of the recent highs. We will have to reassess that top when it comes. But in the correction, watch the NYSE Breadth Oscillator and Nasdaq Breadth Oscillator for oversold readings and a possible short term buying trade.
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In regards to Apple (AAPL), the stock took off to the upside despite what many would consider “bad news” concerning competition from Microsoft and Google with tablet computers. The Money Flow Indicator has a reading of 52 and has hardly moved up in the last rally phase. The “Full Stochastics Indicator” and the “Ultimate Indicator” have much more room to the upside and both indicate that a retest of the old highs around 644 is a distinct possibility now.