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Hey Slopers! I want to show everyone what I'm seeing at this point.
At the end of last year I started watching this channel form. The main broadening channel in blue and then the individual smaller channels and wedges in red. You can see as we began forming the main channel we created a wedge and sold off yet only to create a full channel. We also created a smaller channel while using the former broken trend line as resistance. We stayed in the smaller channel within the larger one for a couple weeks bumping up against that former resistance til we finally got a sell off going back down to the bottom of the main channel.
This post isn't really about making predictions but more of possible out comes in the coming week or so.
If you look at where we are now we've actually created another wedge. Within that wedge is a gorgeous looking broadening triangle which is a very volatile formation. I'm not showing a chart of that because I'm trying to make this as simple and straight forward as possible and I think the main channel is my focus.
To continue I believe the chances of that wedge breaking down and forming another full channel within the bigger one is quite high. It's possible we bust higher from here but I think it's healthier if we at least sell off to the projected trend line I've added. I think the possibility exists that we are going to 1380 by the end of next week even if we get a 10 or 15 point sell-off in the next day or two. We could see an ever biggerpull back all the way down to the bottom of the main blue channel but I favor the first scenario.
If we were to get any where near that projected target at or very near the top main trend line I think the bears could get a nice swift swoosh to shake out the weak hands and reset the charts. It feels strange being bullish on this blog but I have to call it like I see it. The weekly RSI on all the major indexes aren't even close to being overbought. The trend is up in my opinion. Trade accordingly!
I want to thank Tim and all the Slopers for making this blog a way of life.
We're on week 6 of a most impressive market rally, with yet even the slightest of market pullbacks. So what can one expect really, in the weeks ahead. First, let's take a look at market rallies dating back to 1963, nearly 50 years of market data using weekly chart data, to find out what rallies, on a consecutive positive week basis, were greater than what we are currently seeing.
January 1998 through February 1998 – 8 consecutive weeks
May 1997 through June 1997 – 8 consecutive weeks
July 1989 through September 1989 – 9 consecutive weeks
September 1986 through November 1986 – 8 consecutive weeks
October 1985 through December 1985 – 12 consecutive weeks
December 1975 through January 1976 – 8 consecutive weeks
January 1972 through March 1972 – 8 consecutive weeks *
December 1970 through February 1971 – 8 consecutive weeks
November 1963 through January 1964 – 9 consecutive weeks **
July 1963 through September 1963 – 9 consecutive weeks
Cisco (CSCO) reports earnings after today's close. With that in mind, let's have a look at the comparative patterns (and my intermediate-term analytics) on some big-cap technology names.
Intel (INTC) is on a technical buy signal (since Jan 4) and will remain so unless it breaks 26.30 (1st warning), but must break 24.97 to damage the chart structure. My next upside target is 27.50/80 and then 28.50.
Cisco (CSCO) is on a technical buy signal (since Jan 4) and will remain so unless it breaks 19.61 (1st warning), but must break 19.25 to damage the chart structure. My next upside target is 21.05/25 and then 21.40/50.
Microsoft (MSFT) is on a buy signal (since Dec 28) and will remain so unless it breaks 29.70 (1st warning), but must break 28.80 to damage the chart structure. My next upside target is 30.60/80 and then 31.50/60.
I was asked the other day what I thought about the markets and the tear they seem to be on once again. All I could do was shrug. The person then followed with “But you had so much to say before?” of course the person was trying to goad me but hey, it comes with the territory.
As many of you know I have written many articles on why I believed the markets are not acting in ways one would presume. I wrote many times why I felt as I did and gave the reasons why. They’re all in the archives, and unlike most, I haven’t run away from what I’ve said or wrote. However, with all that said, as of right now my warnings could be looked as wrong. The market continues to climb higher by the day. Not only higher but within spitting distance for many indexes to have erased 2008 as if it never happened. No one could be happier at being wrong than yours truly. But saying I’m wrong doesn’t mean I was not “right” in my reasoning or my conclusions to the perils or pitfalls possible. (and are still very present)
One of the phenomena that behavioral economists and psychologists have identified as being part of our decision making process is happening now. The perils of complexity refers to the phenomena where the more complex a decision the more we fall back on simplistic solutions.
In the case of Greece, the number of variables, parties involved and lack of precedents has resulted in the market saying in effect " This is too hard to figure out so I'm just going to wait until it is easier to quantify, then I'll re-price the risk"
Meanwhile Germany is exhibiting the classic signs of an employer who really wants an employee to quit, but doesn't want to pay severance. Over the last few weeks Germany has progressively increased the cost to Greece of staying in the EU by introducing tougher conditionality for any release of funds. Germany wants Greece to leave so that it can redeploy the funds where it is less likely to be a money sinkhole. But they want the process to be sufficiently drawn out that the market has time to adjust. In this regard they are mostly succeeding. We now have Dutch EU Commissioners openly talking about Greece leaving the EU and the market doesn't even blink.
However the market has not priced in the risk because it is too complex. If Greece leaves, as I now think they will, there will be a re-pricing of risk. It will not be a Lehman event, but it should be the catalyst for at least a modest (2-5 %) correction.