Follow the Charts, Not the News

It's Time To Get Technical On This Market

Given the nature of the global economy at the moment, investors may be thinking about other things. One may be the election. The perception that Mitt Romney is improving his chances of winning may be one of them. If Mr. Romney was to win the U.S. presidential election in November, investors presume that he will be more friendly to business than Mr. Obama.

Another theme that could benefit the blue chip and large cap universe would be more easy money from the Federal Reserve and global central banks. This would argue for owning large cap multinational companies. If there is a synchronized juicing up of the global money printing presses, it would seem logical to expect large multinational companies to benefit from any global economic growth.

Chart Courtesy of StockCharts.com

The Dow Jones Industrial Average (INDU) is home to thirty large multinationals. And the index was proof positive that investors want this kind of company in their portfolio. Through all the bad news and fear mongering last week, the blue chip index continued to move higher. Most interesting was the volume spike on Friday, indicating that investors wanted to be prepared for a potentially positive outcome of the Greek election on Sunday.

Chart Courtesy of StockCharts.com

Inside the market, things remain mixed, but they could be a lot worse. The Nasdaq Advance Decline line (NAAD) is mirroring the action of the large cap stocks. This is interesting, and positive. When more stocks rise than fall, so do the chances of picking winners. We like this kind of action.

Chart Courtesy of StockCharts.com

The Nasdaq High Low Line (NAHL) has been alternating between pointing lower and flattening out for some time. This is a neutral indicator. There are two thing to note. One, flat is better than falling. The other is that this is a lagging indicator. Momentum right now is flat, which means that investors would still have time to react to any major developments.

Chart Courtesy of StockCharts.com

Finally, we note that it's difficult to go into a full blown bear market with the utilities making new highs. There are two major points to consider here. The utilities are moving higher because they deliver nice yields in a world where bonds are not. Second, utilities are often bellwethers of improved economic activity as rising prices in the sector often forecast increased power demand, the hallmark of a recovering economy.

The yield argument seems to be holding more water at this point than the recovering economy. Yet, it's difficult to argue with the notion that the utilities are clearly trying to tell the market something.

Chart Courtesy of StockCharts.com

Conclusion

The market is close to making a decision. This is a good time to be paying more attention to the charts than to the news. The charts will filter the news and the market will move. Be ready to move.

Keep your cash ready to deploy and remain patient. Going short or long is not as important as the sustainability of the move. If we're right, the move will be fairly good and will be in place for some time giving trend following investors an opportunity to make money.

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