9 replies to this topic

[Doug]

If we look at the charts the Nasdaq has the potential for a textbook double top. However, every new high retest always has that potential. In trading you have to trade the momentum in hopes of a breakout but always be wary of a failed retest that produces a double top. If the Fed did reverse course back to a tightening bias that would not necessarily mean the markets would crash since it would also mean the economy was doing better than previously thought. It just means there would be market volatility until a balance was achieved.

Nasdaq Chart - Daily


For an important quarter end the volume was extremely weak. Volume on Friday was only 5.3 billion shares across all exchanges. This should have been a 7 billion share day. Volume is a weapon of the bulls and the bulls have been suspiciously absent for the last week. On Friday volume only appeared when sellers appeared. The selling was nipped in the bud every time but there was no follow through. The indexes were pushed back to the flat line and volume shrank again. This is a perfect example of stealth window dressing. They showed up with just enough volume to prevent sellers from piling on and the status quo was maintained. The sellers evidently realized the end of quarter game was in progress and stepped aside to wait until Monday. The odds are good the tide will turn on Monday and funds will be heading to the sidelines to wait for the jobs report.

Economic Calendar


The key reports for next week are the ISM on Monday and the September Non-Farm Payrolls on Friday. As you read above the ISM should be positive but the big wall of worry the bulls have to climb comes with the jobs report on Friday. The consensus estimate is for a gain of 115,000 jobs and a sharp revision higher for the August report that showed a loss of -4,000 jobs. Friday's report has the ability to rock the markets and move the Fed.

If the report comes in as expected and August jobs are revised sharply higher the implications for the economy are very strong. It would indicate that the -4,000 jobs last month was a bookkeeping error and the economy is much stronger than everybody thought. The Fed would be instantly knocked back to the sidelines and there would be no further rate cuts.

This would be the proverbial good news, bad news joke for the markets. Good news, the economy is stronger than we thought. Bad news the two to three additional Fed rate cuts already priced into the market need to be removed. A sharp revision higher in jobs could mean a -300 point haircut for the Dow. Over the last two weeks the market has been in hover mode after the post Fed bounce. The sudden and forceful action added about 500 points to the Dow since Sept-17th when the Dow closed right at 13400. The Dow has basically moved sideways since the Fed meeting with every dip bought but every rally sold. It is hovering just under 14000 while waiting on some confirmation that the good news is true. For the first week the market acted like it was too good to be true and actually gave up a little ground. As more news came out the bulls slowly began to accept the fact the Fed was on their side and late last week we started to see some additional gains.

Dow Chart - Daily


Lastly the final reading for Consumer Sentiment came in unchanged at 83.4 and we could be seeing a bottom form after nearly a year of declines. The Fed rate cuts, the approaching holiday season and the post Fed market rally may have halted the slide.

Consumer Sentiment Chart


In my humble opinion I think the potential for profit taking next week is very strong. There are just too many factors lining up against us and funds would rather take profits on their own schedule than be blown out of the market on unexpected data. They can always get back in when the smoke clears and the market picks a direction.

Regards,

[eminimee]

offering these with no bias...

just showing resistance.

[relax]

i think it is wrong to mix technicals with fundamentals you have taken a bearish view and then you try to explain with fundamentals the fact is that you have no clue how markets will react to a strong job report i would argue that a strong report would be positive, sure rate cuts would be priced out, but i have seen that happen before without any big drop and even if the market drops, a strong report is definitely something the markets prefers in the long run, no more -4.000 job reports double top - well let's see the market going below aug 16, before calling it a double top as long as data is in focus, the market is just doing business as usual, in order words no panic and no fierce drops like we have seen in august

[Doug]

i think it is wrong to mix technicals with fundamentals

you have taken a bearish view and then you try to explain with fundamentals

the fact is that you have no clue how markets will react to a strong job report

i would argue that a strong report would be positive, sure rate cuts would be priced out, but i have seen that happen before without any big drop

and even if the market drops, a strong report is definitely something the markets prefers in the long run, no more -4.000 job reports

double top - well let's see the market going below aug 16, before calling it a double top

as long as data is in focus, the market is just doing business as usual, in order words no panic and no fierce drops like we have seen in august

I never make the mistake of arguing my opinion. In the end, all analysis, whether technical, fundamental, fibs, candles, tea leaves or a dart board, it is all opinion. My opinion, if the numbers are revised up significantly, the market, already under selling pressure, will fall.

We'll talk again on Friday afternoon.

Regards,

[relax]

sure market may go down, but when the market is simply doing business as usual by focusing on data, then i see no panic, in other words any dip will be bought but exactly we'll talk friday ;-)

[pdx5]

If we look at the charts the Nasdaq has the potential for a textbook double top. However, every new high retest always has that potential. In trading you have to trade the momentum in hopes of a breakout but always be wary of a failed retest that produces a double top. If the Fed did reverse course back to a tightening bias that would not necessarily mean the markets would crash since it would also mean the economy was doing better than previously thought. It just means there would be market volatility until a balance was achieved.

Thanks for this post!

[iloli way]

"In my humble opinion I think the potential for profit taking next week is very strong. There are just too many factors lining up against us and funds would rather take profits on their own schedule than be blown out of the market on unexpected data. They can always get back in when the smoke clears and the market picks a direction. Regards," -------------------------------------------------------------------------------------------------------------------------------- Agreed. All other data awaiting are unknown to us at the moment. One exception, profit sure is already known. Base on that profit - a nearly 10% since first rate cut, a nearly 4% if luckily bet on second cut - a 'profit taking' more probable than a 'short squeeze' in front of a mega-resistance. The questions for Fed's "friends" are: When do I reap from the cut? Did 9/18 rally trap enough suckers and short coverings to bail me out? We may even see a little fake-out above high to trap some more suckers in. Buyers beware IMO.

[thespookyone]

"i think it is wrong to mix technicals with fundamentals" That is profered here quite a bit, relax_dk, which I allways find odd. Certainly the biggest day the market had in months was caused by a fundamental-the .50 rate interest cut. Those who ignored that fundamental possibility paid for it-in my estimation. Unless, of course you could show me that the technicals leading into that afternoon were screaming 250 point plus jump coming in a 5 minute span. I trade using technicals, of course, but see NO reason to ignore certain fundamental issues that can effect the market drastically-why would I? If we had a fundamental occurance before the market opened Monday, such as a run on the 5 biggest banks in the US, would I ignore it, and trade the technicals indicated Friday?-Fat Chance. I was trading the morning of 911, and noticed after the fact, that the technicals leading up to that day meant quite little -quickly-after that fundamental occurance took place. All in all, I would never trade stricly on fundamentals, but am sure ignoring their effect can be quite costly. Spooky

[relax]

Agree spooky, but these fundamental events were not only quite rare but really significant, so of course I agree with you but imo most fundamentals will act on the market depending on the mood, cycles and the general technical picture nearly all economic data will very rarely break a technical trend so to say that the payrolls data will thrash Dow, is getting to excited imo As we are getting close to the 10 week cycle low we could get a strong reaction, just as was the case in connection with the 5 week cycle low on sep 10 in connection with the -4,000 job report and last week there were several weak economic reports, but because the mood was good and there was no big cycle low due, then there was no big sell off

[Doug]

I agree, Spooky, before the Fed announcement, The SPX chart was setting up beautifully for a textbook H&S. One more down day and it would have been in play and the entire September expiration cycle would have been consumed by the H&S. However, the Fed action rescued the chart temporarily. I still believe the result of that H&S will be felt but somewhat muted. The effect may come if the jobs report provides the catalyst on Friday.




Regards,