There’s been lots made recently bout whether we topped in the equity markets and are set up for some decent retracement, if not outright correction.
Dow theorists are split over whether the repeated failed attempts to break through the May 1 high near 13,280 is flaggin a buy or sell signal.
Those on the long side of the argument believe we’re simply coiling and poised to break decidedly northbound. Sneak a gander at the map and it’s no stretch to see how the bulls would feel emboldened were we to get through the May high…we’d be lookin at less than 900 points to a test of the all-time closing-level high for the index at 14,164, set in early October 2007.
Given that the wheels started to fall off the wagon just a couple months after that high was put in…and considering all that’s occurred in the interim and what we continue to deal with in the wake of the financial meltdown, tis safe to assume that when the record does get clipped, it will indeed be significant. No doubt a fair number would view such an event as THE signal the market had finally closed the chapter on the entire mess and would at that point be set for some serious upside…
But that’s a long way off for now…not that the index can’t take out a thousand points in short order… several days work were the bulls serious.
No, it’s a long ways off in terms of the outright closure necessary for this chapter to wind down…certainly another Greek bailout or two in order…as well as additional helpings at the bailout buffet for the Spaniards and Italians.
On the flip side, many Dow theorists believe the failure to get through is an outright sell signal portending trouble ahead. Technically speaking, they view recent action as the formation of a lid…and the start of what will likely be a correction.
Turning back to the map, it’s easy to see that a failure to get through will result in a test of short and longer-term trendline support. Take that out and we are surely lookin at correction…which would easily see the 12k level tested, matching the year-to-date low. Failure there would bring the 10,400 mark into play—the 52-week low hit in early October 2011. Downstream from there and we are back to “pucker” land…a place we don’t wanna go, even theoretically!
Peeps on that side of the argument point to the still unresolved issues with the EURO, the EU, the slowing economy in China, the uncertainty over the impact of the upcoming election, health care legislation, double-dip fear, inflation fears, fears that the fed won’t offer QE3, fear they
will…yadayadayada….
A whole lotta fears, as it were…………………….to which the bulls would counter that such amounts to a Wall of Worry…exactly what the market needs to take out the lid and begin a siege-move against the all- time high……..To which the bears respond…………………………………………..
Well, the good news is we are back to more regular market happenings—inflation worries, dollar strength or weakness, valuations, Fed watch, etc. Don’t know bout you, but I’ll take this over the “falling off a cliff” rhetoric that has prevailed for quite some time now…
That said, there is the fair question of what all this amounts to? The short and correct answer is NOTHIN…matters not, at all!
Bottom line, if your attention is focused on what the economy is gonna do…where this market is headed longer-term…or whether the systemic issues have been addressed and corrected—they haven’t– (keep in mind we didn’t even touch on what are real issues for traders, such as high frequency trading), then you are falling into the trap of market noise…
Best advice—exit immediately, put on your blinders, turn off the idiot box, quit trying to predict or guess or anything else…trade the here and now utilizing your system and plan…and forget all else……………
~LH