Good morning, everyone, and welcome to a new week. Let’s just stick with the basics in this post and take a fresh look at the /ES and the /NQ charts. First off, here is the /ES, which as I am typing this is down about six points.
As the tinted areas suggest, my view (or, dare I say, hope) is that this grind-it-out consolidation will result in yet another trip down to 3800-land. This is, I suppose, largely dependent on the ridiculous political theatre going on right now. To be clear, they could announce a deal right this second regarding the debt ceiling, and it solves precisely ZERO problems, except inasmuch as a default doesn’t happen. All the same, traders are at the mercy of the not-that-bright politicos haggling and posturing right now in D.C.
No one can speculate as to which way the wind is going to blow with these guys, but as a chartist, I can only point to the substantial and powerful resistance at approximately 4200 as the best ally of those positioned on the short side. My principle point of uneasiness is in the bank sector (and, by way of extension, the small caps) which have been so battered down as to how a chance to show some counter-trend strength. I am thus at 10% cash and have drawn some cash out of my account for safety’s sake.
Now let’s turn our attention to the tech stock world of the /NQ:
This chart is much simpler, in the respect that it is in “bull mode” right now and will be as long as it stays above that green ascending trendline. I’ve tinted the area where things could get wobbly. Most of you know that this market is massively, utterly, and totally dependent on just a few stocks (the mega-caps like AAPL and MSFT) and, should those ever falter, the entire market is screwed. At the moment, however, there’s no faltering to be found. History has shown, however, that any market so utterly dependent on a tiny number of mega-caps will be in serious trouble soon enough.
I’ll just close with a bonus chart of the /RTY futures to suggest my most outlandish bearish scenario, which would be a completion of the head and shoulders pattern I’ve tinted on the right. Take out that neckline, and it’s mega-party time, boys ‘n’ girls.
