I have avoided writing a new post for a few days, hoping the market action would become more clear and would have something to say. But it hasn’t really become clear. Oil fell today in one of the largest one day declines in years, probably on words by Bush about offshore drilling. You can imagine how much oil would plunge if the offshore restrictions were to expire without renewal. But not likely to happen with the left leaning congress only interested in lessening demand rather than increasing supply. Then Abbott and Costello were testifying before the senate, which seemed to cause much volatility in the stock indexes. At one point, after being down around 200 on the Dow, the indexes rallied to positive territory for a bit, thus creating a very bullish looking hammer candle. But selling came back in and negated the hopeful-for-the-bulls candle. The Fannie/Freddie pummeling continued to cause concern for the financials. It was a wild day on the ides of July.
I have really tried to be a contrarian and find some reason, or some slight clue that would signal a rally. So far there hasn’t been much to grab on to. The advance/decline ratio has been heading straight down. The S&P has broken all support, and the Nasdaq is barely holding on. There have been several price rejection tails on the candles on the above QQQ chart, in fact five in the last eight days, yet price keeps grinding lower. You can see than volume has been increasing on the decline in prices. Not a good sign, and probably not yet enough of a volume spike to indicate a final capitulation. That doesn’t have to occur to find a bottom, but often does. I drew green lines to indicate the volume/price trends. The candle today on the QQQ does look like it tried to reject the lower levels, and was good that it closed higher than the open. Sort of an indecision bar after a persistent drop. If that buying tail were left unchallanged perhaps some buying, at least short covering, might follow. That idea has failed recently, but the candle today looks a little more convincing with the higher volume. Much of that volume could have been buying interests and not just volume on liquidation. I will stand aside until my indicators indicate something I can understand.
Gold has continued higher, although many of the other commodity markets have been getting hit. The oil drop came within the context of a steep uptrend. I’ve been expecting drops in this market to come without warning and out of the blue. I am still waiting for evidence of the trend to change before trying to short. Same thing with corn, which got hit hard today. It looks like that trend might be over. Maybe the ethanol madness will end when politicians wise up. On second thought, that will probably not happen. Some politicians get it, but most would rather have useless feel good policies. Many people are being hurt by these policies.