Indecision in Washington has led, not surprisingly, to indecision on Wall Street. But what is surprising is the lack of an emotional response.
Sure, markets have gone down, but they have gone down in a very orderly manner. Even the bigger drop yesterday was not accompanied by a big jump in volume. And remember, yesterday was the last day of the month and the quarter, which would be expected to bring in a jump in activity. Moreover, since the cycle top nine sessions ago, the volume has not been going heavily to the sell side on any given day.
Because we have had such a long string of down days, the shorter-term Arms Index moving averages have gone to an oversold level. But we have had no single days of extremely big readings, indicating a general caution but no panic. I think we need some unreasoningly fearful selling before this slide can find significant support.
The two-month cycle pattern calls for a low late in October, so the current decline is likely to go lower. I expect to have a small rally very soon because of the oversold numbers, but I do not think the decline is over. Stay with those shorts suggested at the cycle high.
S&P 500
Source: Metastock
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Dow Jones Industrials
Source: Metastock
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Vale: Repeat Buy
Vale (VALE)
Source: Metastock
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Since the stock of Vale (VALE) was suggested as a Buy on Aug. 27 it has moved up nicely on heavier volume and then pulled back part way on lighter trading. This brings it back to the bottom of the uptrend, where I think it can again be bought. But in view of the recent market weakness, I would not tolerate very much risk, placing the protective stop just below that lower trendline.
American Express: Short
American Express (AXP)
Source: Metastock
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American Express (AXP) looks as though it is again refusing the highs first made in May and then tested in July. With the markets showing weakness and the financials appearing as though they may lead the way lower, this stock looks like an interesting way to participate.
One doing so would assume a relatively small risk by having a stop waiting just above the series of highs, yet be open to a substantial gain.
At the time of publication, the author had no positions in any of the securities mentioned.