Short Consolidation Resolves Upward

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The following is an excerpt from the November 1, 2012 blog for Decision Point subscribers.

As New York City and other parts of the northeast begin to recover from the hurricane, the market may have started its own recovery. It opened up and stayed up the remainder of the day.

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Stocks: Based upon a 06/29/2012 Thrust/Trend Model buy signal, our current intermediate-term market posture for the S&P 500 is bullish. The long-term component of the Trend Model is on a buy signal as of 1/5/2012, so our long-term posture is bullish.

Today's rally brought price right up above the April high but it closed just below the September low. By moving and closing above the 50-EMA price is a cushion between the 20-EMA and the 50-EMA preventing a negative crossover and a signal change to neutral. Volume expanded but the PMO is still heading down.

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Ultra-short-term indicators are no longer oversold and in the case of the CVI and Participation Index-UP, they are now becoming somewhat overbought.

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Short-term indicators also cleared oversold conditions but they are in neutral and have some ground to cover before becoming overbought.

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The rally today was enough to turn the ITBM and ITVM back up. They haven't been great predictors for awhile as they have been in mostly neutral territory since the beginning of summer.

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Price conditions are still fairly neutral.

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Conclusion: We have been asserting that price will likely remain bounded by the August low and the April high until the election but today it got above the April high which could signal that the market is optimistic about the election or decent economic reports despite lukewarm earnings reports. Most likely today's rally is just another short-lived short squeeze. Ultra-short-term indicators, while sitting somewhat overbought, still have room to accommodate a bit more rally before needing a pullback. Short-term and intermediate-term the market price and condition are neutral meaning they are ready for anything.

Dollar: As of 8/22/2012 the US Dollar Index ETF (UUP) is on a Trend Model neutral signal.

After breaking out above the intermediate-term declining tops line, the dollar has gotten close to short-term overhead resistance and now seems to be stuck there. The PMO is still rising indicating momentum is still positive.

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Gold: As of 8/8/2012 Gold is on a Trend Model buy signal.

Even with the dollar in a holding pattern, gold has been failing illustrating there is internal weakness not associated with the dollar. After a break above the 50-EMA, gold resumed its fall toward support along the rising bottoms line drawn from the June low.

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Crude Oil (USO): As of 10/02/2012 United States Oil Fund (USO) is on a Trend Model sell signal.

USO is in forming a reverse flag. Momentum is still negative as we see the PMO continuing to fall.

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Bonds (TLT): As of 9/7/2012 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model neutral signal.

Bonds are now within a triangle but today's price action has yesterday becoming a new top that did not reach resistance which is bearish.

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About Erin Heim