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Today's Market WrapUp 03.15.2007 Mon Tue Wed Thu Fri Goldberg Archive Market
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Following is a transcript, of my interview with Ike Iossif on www.marketviews.tv. This expresses my technical views on the stock, gold, and bond markets. Ike - Last week the market tried to stabilize, and I have 2 questions to ask you. One, do you believe that what we saw the last 10 trading days was a one time thing or actually the market is trying to convey a message? Two, if it is trying to convey a message, do you think that there is some sort of stabilization going on after what we saw last week? Martin - I think the action last Tuesday was a shot over the bow. And the reason I feel that way is simply the volume action. We had a tremendous amount of volume – record breaking – on the exchanges as they sold off. And so, we were in a market where we were overdue for a correction. And then we were shown this signal which was extremely high volume. Volume usually tells a story. And it was extremely high volume to the downside. Now you will recall, going into that Tuesday swoon, the market was trying to advance but as it was trying, it was on diminishing volume. So, the market sold off hard and is a market that is overdue for a correction because it hasn’t corrected since the summer. And if you then look at the action over the last few days it has been bullish. But if you look at the volume bars for each day such as for the S&P 500, you can see again, a diminishing volume. In fact after having set a record last Tuesday, yesterday’s volume was less than an average day’s amount. So the answer to the second question, the market is trying to stabilize. But I don’t think this rally or stabilization has much longer to go. Ike - Martin, do you see the recent correction as a correction within the definition of a correction of a bull market, or do you see any evidence that this is the beginning of a bear market? Martin - I don’t know the answer to that question. But I will say this. If it proves out in the future to be the resumption of the bear market, technicians and others will look back and see the record breaking volume that occurred and will say in retrospect, “Well look at this, it was record breaking volume and it was giving us a signal.” So at this point, I don’t know if this is an intermediate correction, or something more major in its magnitude and scope. I think at the least, this is signaling an intermediate term correction – the correction of the rally that began in the summer. If it is only that, then we would expect it to last a period of weeks and correct a good bit of the rally, which was a rally of about 20 percent. And that hasn’t happened yet. But I wouldn’t rule out that this could be something of more importance in the long term. And the reason I say that is – again – because of the volume. When you get volume that is sort of, climatic, although it's not 100%, it can signal a major turning point. Ike - Martin, are there any charts you would like to comment on? Martin - Yes, and that is simply the daily chart of the S&P 500. There you see the Tuesday selloff, then a little more of a selloff, and an attempted recovery, where you look at the volume bars (for the recovery) and they are straight and almost perfectly linear to the downside. So if volume were to pick up as we were going higher in price, well, then of course, I would have to revise my opinion. To the upside you see the 50-day moving average and other standard indicators like that. But until that happens, I’m extremely skeptical that this rally is anything of importance. I think we are in a correction. I think the correction will continue in the next days to weeks time frame.
Another thing I would like to point out also is about sentiment. I found interesting and may be of importance, the general newsworthiness of the stock market. In the recent past (since the summer) the stock market has not grabbed people’s attention the way it has in the historical past. But interestingly after that Tuesday selloff, the stock market went from being just a footnote at the end of the newscast to the number one story. And all of a sudden within a day, everybody was talking about the stock market. When you couple that with the rally that we’ve had over the last few days, people seemed to have, all of a sudden, calmed down. And the volatility index has also dropped down along with the trading volume. Something is “up” with that. How can I put it? Something there smells a little bit! So to summarize, I think that we are in at least a correction of the summer rally, and so I think it will extend of longer duration and greater percentage. But I certainly wouldn’t rule out that something more important is taking place. Ike - Do you have any thoughts on gold and gold stocks? Martin - Yes, but my observations are not of a short term nature. I think the price action of the gold bugs index ($HUI) traces nicely, an Elliott Wave pattern. We talked about that before. In the longest term, we are in the third wave, a bullish wave; we are in a long term bull market there. The shorter term wave structure, we are in a correction. We are in a wave 2. And so we are waiting for that third wave of the third wave to begin. That second wave (wave 2) has fooled a lot of traders. It’s been corrective. It’s been back and forth. It’s almost like a tug of war with two strong forces pulling in each direction. And I do think – and this is going to be measured in a period of months – that when we break to new highs in the $HUI, that it will signal the resumption of something really special in the gold market. But so far that hasn’t happened and it’s been tough to trade.
Ike - Martin, anything else you want to add? Martin - The other important aspect I’m seeing in the financial markets is the action in bonds. In the bond market we are in a very long (secular) trend toward lower interest rates. In the long term, but not extremely long term – 3 years or so – we are in a trend of higher interest rates. The intermediate term is difficult to gauge in a manner similar to the gold stocks. But in the short term, we are at a critical technical juncture, where we are sitting on minor support in terms of interest rates and minor support in terms of bond prices. My gut and feelings are telling me that long interest rates are moving higher. Aside from my feelings, I think if you look at the long bond exchange traded fund (TLT), I think the short term critical technical juncture is at about 90 on the TLT. If it is turned downward, that will support my feelings. But if we go decisively above that 90 mark that will tell me my feelings were wrong, and in terms of a trading opportunity, I would cover (my short) at that point. And then I would turn bullish on bonds.
Ike - Thank you and have a great day. Martin Goldberg Copyright © 2007 All rights reserved. CONTACT
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