The stock market has particular characteristics. The movement up takes time but is persistent. Always watch the manner that the market moves. Many times reversals within the day are inconclusive unless they are accompanied by high volume. Take the situation as it is and evaluate price action as well as internals. We are still not experiencing high extreme plus NYSE tick. Therefore, the volume is low and institutional activity is less than normal. Markets are like a rubber band. They take extensions and then snap to equilibrium. This market needs to have a correction but so far it has experienced too much extension without being released to pursue equilibrium. It must experience some sort of catalyst to snap reality back into this market. However, playing defense is still the way to keep in the game.
There was an offsetting indirect correlation between the S&P and the bonds on Monday. They are experiencing more erosion while the S&P is still extending. The paradox is that the situation has left extremes in both markets. Has the Federal Reserve abandoned its Operation Twist? Why doesn’t anyone question them? The reason is because the stock market is rallying and that is viewed as good for an election year.
The daily CCT showed bullish indications as evidenced by several plus 1000 NYSE ticks during Tuesday’s intraday trading. The resulting S&P movement was actually down on the day. I’ve witnessed this paradox for several trading days, whereby there is an internal deterioration. The fact that bullish energy is being expended and a bearish affect on prices has emerged is a dichotomy. These two must become in sync.
The bonds’ rallies are not holding lately. I feel there is still money being defused from the bonds and infused into stocks. A day where bonds rally and hold a gain of more than one full point will be indicative of the bonds finally having traction.
It is important to be aware at all times of the three-day high and the three-day low. This situation is notable because it denotes a change in direction, speed, and momentum. The stock market has persisted to the upside, but as of Thursday it broke the three-day low and was unable to scurry back into the safe house. Bonds fell just shy of the resistance at 137 ½. It was interesting that this probe was a one-time shot and then the bonds traded significantly below the price for the remainder of the day. It is noteworthy if the bonds cannot rally above at least the first resistance area of 137 ½ on a closing basis. This is tepid at best.
From Friday’s opening bell there were lower lows as the S&P made a lower low through the previous day’s bottom. Then as if on cue, the rally began. It carried over 11 points and in a very short time frame. Isn't it interesting how a consistent downtrend is short-circuited as if on cue, then a methodical uptrend develops?
The formation stages of a box have appeared. The basic definition of a box materialized by journeying to the ceiling and is perhaps in the construction stages of a support area. Moreover, there are not rapid movements with heavy volume. Thus, this is a contained market. These are all definitions of the type of environment that establishes a box.
Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner spoke on Europe's economic crisis, but their prose had no sway whatsoever. Apple, the largest stock by market cap, has shares up 50% on the year. Oil prices jumped on Friday, but still remained negative to cap off the trading week. The bonds had a strong morning as it hurdled the 137 1/2 price area. It appeared they were in a very strong trend, but as we moved through 138 the switch seemed turn off. There is secondary resistance up at 139, so keep in mind that the strength could follow through if energy persists.
The S&P 500 experienced its worst week so far this year. However, to end the quarter next week, the ongoing stock market rally may pop once more as investors dress up their portfolios with some last minute buying.