Have You Heard the One About the Market Technician?
At the risk of sounding like a stereotype, Helene maps out her short-term forecast for stocks.
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There is an old joke about market technicians. Something about how technicians have a theme song titled ‘One More Rally’. I thought of that on Monday because I have said I think we should see a short-term rally this week, but at the same time I think after such a rally, we will be intermediate term overbought and, therefore, should come down again.
Is it possible we don’t have that one last rally? Sure but look at the Overbought /Oversold Oscillator which is my short term Oscillator. I believe by the end of the day on Tuesday it will be below the zero line and therefore oversold enough for a bounce. Nasdaq’s is already there.
Oh sure I know it’s convenient that it lines up with Microsoft’s earnings and the Fed but I don’t make the rules.
Or we can look at the short term Nasdaq Momentum Indicator. While the Oscillator (above) is based on market breadth this indicator is based on price. What I do here is plug in lower closes for Nasdaq over the next week or so to see the point where the indicator not only stops going down but rises.
Because these are momentum indicators we look for the point in time that the price goes lower but the indicator goes up because that is a loss of downside momentum and a loss of downside momentum is the definition of oversold.
Here I have walked Nasdaq down about one thousand points in the next week or so and you can see the indicator stops going down. It does go up. I know it doesn’t zoom up, but it stops going down and lifts. That is why I said last week that I think we get a short term rally this week.
If we do get a rally it will probably take some of the gloom that has developed in the last few days and lift it. So few are banking on the index movers rallying that all those folks who come on television now and report that they sold their tech in late June would probably tell us they bought it back last week!
For me that should set us up for an intermediate term overbought condition as we head into early August. I would really like to see the QQQ break this line sometime in the next 4-6 weeks (after a rally). I think that would bring us a good solid level of bearishness.
I want to end by noting that I have been waiting –not so patiently—for COPX to come down and tag that 38-40 level. Remember all those copper bulls? We don’t hear from them anymore do we? Well the Daily Sentiment Index (DSI) for Copper just got to 10 so I am going to start looking for a copper rally. With any luck we get one more whack there to get the DSI under 10, but this is the neighborhood.
