MARKET OBSERVATIONS FOR SEPTEMBER 30, 2012: The stock market is still going through a very shallow correction in terms of price. I expect the old highs to be tested soon. The stock market may need to back and fill for another week before taking off again for the upside. While an argument can be made that the direction should be down, the current oversold condition of the market in terms of breadth makes me think that there is more to this rally. So don’t get complacent!
Key market indicators show the following:
- McClellan Summation Index – has started trending downwards. It is a warning that market breadth is going south.
- Investor Sentiment – is now mid-ranged in the short-term and long-term. The market can go either way.
- NYSE Breadth Oscillator – Ultimate Indicator reading of 33 is slightly above its mid-week reading of being oversold. I would expect another move down to retest the correction lows before heading back up.
- Nasdaq Breadth Oscillator – Ultimate Indicator reading of 34 after being in oversold range for most of last week. This confirms the NYSE Breadth Oscillator and it is expected to head back up shortly…perhaps after one more attempt to the downside.
- Risk On/Risk Off Indicator -Ultimate Indicator reading of 38 after barely touching oversold reading. This also confirms the breadth indicators of an oversold market.
For now, the best advice is to wait for a retest of either last week’s lows or the previous week’s highs within days. The market could surprise a lot of people by continuing it rally against the backdrop of a classic “wall of worry.”
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In regards to Apple (AAPL), the stock has had its typical 50 point correction this past couple of weeks. It may go up from here to challenge its recent high at 705 or go down to its 200-day moving average around 570. Near-term the stock is close to its first oversold reading in the Full Stochastics Indicator. That oversold reading would be the first place to start accumulating this stock for a trade.
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MARKET OBSERVATIONS FOR SEPTEMBER 25, 2012: The stock market is going through a very shallow correction in terms of price. I would expect the market to begin a short rally any day now as part of institutional window dressing. That rally should take the Dow to a new closing high. But the early part of October could bring the long-awaited swing to the downside in order to counter-balance the excessive euphoria and complacency in the market. That move down could end up being steep and swift as well. So be prepared!
Key market indicators show the following:
For now, the best advice is to remain on the sidelines getting ready for a retest of last week’s highs. For nimble traders, a short-term buy signal could come around Wednesday with further weakness in the market. That buy signal would be for a very short ride up to new highs. Be ready to sell out quickly if the new high does not have strength in other areas to confirm.
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In regards to Apple (AAPL), the stock may be finally making a case for weakness. A Wall Street Craps trading tool called “The Apple/Google Trading Indicator” has just flashed a sell signal on Apple. This indicator shows the relative strength of Apple vs. Google/Android in terms of leadership. I use it as an early sign of strength or weakness in the world’s most popular company, Apple. And today, it says “sell.”
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MARKET OBSERVATIONS FOR SEPTEMBER 20, 2012: The stock market has blown above its trading range with a successful test of the old highs. And while this move seems to have been triggered by obvious good fundamental news, a wise investor would be smart to go with the trend which is up. There’s nothing worse then being too clever in your analysis so that you end up fighting against a strong bullish trend with risky short-selling strategies. Remember that a market doesn’t change direction until it reaches a clear point of exhaustion which is not necessarily the most extreme price.
The McClellan Summation Index is consolidating its gains as shown by the cluster of dots on the chart. It may be regrouping for another charge to the upside.
Other key market indicators show the following:
- Investor Sentiment – is neutral in the short-term and overbought in the long-term
- NYSE Breadth Oscillator – has a reading to 51 and may come down enough for a re-entry point in this rally.
- Nasdaq Breadth Oscillator has a reading of 49 and may signal a new entry point with a short-term decline
- Risk On/Risk Off Indicator – actually flashed an overbought sell signal on Friday.
- Dow Theory/Dow Transportation Average – this index has not confirmed the strength in the other major averages. This is a concern for me as it signals that a top is being formed here. A new DJIA high in the short-term does not look like it will be confirmed by the Dow Jones Transportation Average. That would be a classic sell signal according to Dow Theory principles.
For now, the best advice is to remain on the sidelines getting ready for a chance to reenter the market on short-term weakness. That signal will be triggered by oversold breadth signals from the NYMO and confirmed by the NAMO. That could come in the next week so be ready. But if the weakness in the Transportation Average persists, I’d sell out and move to cash on the next DJIA high in all trading and speculative funds.
Quick Update: The Transportation Index fell sharply while the DJIA made a new high on Thursday’s close. This is a classic non-confirmation according to the Dow Theory. Expect market weakness at any time now.
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