Home > Short-Term Trader > Markets – Time To Take A Deep Breath

Markets – Time To Take A Deep Breath

September was a month in which market participants were largely caught by surprise as the masses were in a foul mood towards stocks. The fundamental guys focused on the string of dismal economic data releases and the technical crowd honed in on the broad head and shoulders pattern.

On September 2nd, I highlighted the distinct possibility for a market rally as the chart landscape coupled with sentiment appeared to be painting a rosier outlook. Now that we have rallied smartly since the beginning of the month we appear to have hit a point where we have to step back and see how the recent rally holds.

Today's volume in the ES contract was the highest since July 1st, and it came on a bearish day. A bearish rising wedge triggered on the 60 minute chart this morning. For the short-term, a pullback towards the 1120 area looks very likely, which fills the gap from 9/23 and puts in a test of the breakout from the summer's trading range.

Es rising wedge

Recently, financial stocks have acted very poorly as the news hasn't been particularly supportive for them. I will be paying close attention to how they act on any corrective action in the broad market. If this sector begins to sink too far too fast, it could jeopardize the breakout from the summer's trading range

There are a few bright spots however, which keep me still in the bull camp on the bigger picture. The Nasdaq, Emerging markets, and Dr. Copper (P.h. D. in economics) have been leading the way. The Nasdaq high beta stocks have put on quite a show. It is unclear though as to how much more upside these high flyer's have left in them? The charts have become quite extended on not only a short-term basis but from a longer-term perspective as well.

It is very possible that during a pullback/consolidation we will see sector rotation, providing fuel for the next leg up. Oil has exploded upwards the past couple of days on the heels of a huge inventory draw-down and is challenging a trend-line extending back to April. If Oil breaks out then this will certainly help buoy the Oil sector which has a significant weighting in the S&P 500.

Cl longer term trendline

Furthermore, the chase for performance is on! Funds have struggled and will need to get more aggressive if they are to close out the year on a positive note. The reach for yield could become a self reinforcing trend pushing risk assets prices to more than 'organic' levels during the 4th quarter.

Bottom line, the ES looks good for a short-term play to the downside and after that we will have to see if the charts can start to build a base to move higher. 

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Categories: Short-Term Trader
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