Happy New Years folks. It’s now 2013 and we’ve somehow survived the Mayan calendar calamity, fiscal cliff, European debt debacle and myriad other issues. And the net effect is that we find the broad markets sitting a little higher than a month ago…but certainly not far from the previous mark and nothing to be breaking out the bubbly over.
As you can see from the daily charts of the INDU and SPX, the broad markets have managed to actually break above the respective consolidation zones we’ve spoken about for some time now. The near-term target on the long side of the market is now the September to October triple-top highs, which the SPX actually traded to within spitting distance of just last week. The INDU has displayed a bit more of a drag, but it remains within 2 percent of its recent high. .
On the flip side, bears are going to want to see a test and failure at what had been the resistance lines of the aforementioned consolidation zones. If that were to occur, the obvious play would be a short to test the lower end of those zones…representing more of the same type of side-winding consolidation activity witnessed throughout the second half of 2012…and more coiling of energy seeking to be released.
In terms of that stored energy seeking somewhere to go (and getting us clear of this damned zone), we need to look bigger picture at the monthly charts.
Close inspection paints a clear picture, as we’ve pointed out on numerous occasions in months past. The upside target is obviously the Fall highs, followed by 14K and then the record high near 14.2K for the INDU, and 1,500 followed by the record high of 1,576 for the SPX, respectively.
Were we to break down and lose the consolidation zone support, both indices would be targeting their respective November lows. Failure there and suddenly it’s looking like a test of the lower support areas of the recovery channel that dates from the 2009 market collapse lows. Quite a ways off, to be sure, but were the downside momentum to build to the point that we break the November lows, that coiled energy we’ve spoken about so much would suddenly ramp up the pucker factor amongst market bulls and we could see a quick trip down.
For now though, while the markets have made some upside progress, the ground we find ourselves occupying has been chewed up previously in battle and the side-winding trend has yet to be broken. The real issue of who’s in control has yet to be answered and the stored energy of this coiled market has yet to be released. With the fiscal cliff mess behind us (sort of) and earnings season set to start, perhaps we shall finally get just such a release…
We shall see…