Jan 12th, 2009 by Doug Tucker
Stocks were lower again today. Volume was still muted, and the advance/decline ratio still appears somewhat constructive. It still appears that the stock indexes are at least trying to trend sideways instead of down, at least on the daily perspective. The price action today is testing the pivot low area around 12/24 or so. This whole sideways movement is on light volume, so I’d expect a breakout on way or the other, with volume returning to the market. Volatility has come down quite a bit, but is still quite high. If I had to bet, I’d bet on an upside breakout, although that opinion is starting to become the consensus, so will probably be wrong. Since I don’t have to bet, I’ll just wait and watch.
For clues I often turn to the Baltic Dry Index. For new readers who are not familiar with this index I have an article here: Baltic Dry Index article. The Baltic Dry Index has recently retraced the entire spectacular bull market it made over the last couple of years. There was a huge momentum divergence at that double top on the right side of the chart. Momentum is now oversold, obviously, however there seems to be little interest in a bounce. Many traders will use these large retracements for bargain hunting. I find that most often when markets retrace entire moves, there is little interest in starting the bull market over again. Most ofter there will be long periods of disinterest and boredom before a new bull market can begin. Since this index isn’t really a tradable index, it does suggest there could be a long period of low economic activity globally. This would be especially bearish for commodities in general. Some bounce in this index is probably overdue, and if it should occur there would likely be much excitement that bad times are behind us. But I think any upmove at this time would be nothing more than a dead cat bounce.
As the Baltic Dry Index has retraced all of its bull market, as have many other commodities, one would think gold would have also retraced its entire move and should be trading under $300. But gold, although well off the highs of last year, is still holding up fairly well. The irresponsible fed and treasury can be given credit for that. There seems to be little possibility of any good outcome for the dollar in the long run. It may be that other currencies will be diluted even further than the dollar, which may prop up the dollar in relative terms, but in absolute terms, such as against gold, currencies could go the way of the d-mark in the 20′s. I’ll keep a wheelbarrow in the garage just in case I need to buy a loaf of bread. The above chart of the gold etf shows the nice down-channel, with nice even swings in the short-term momentum index. The channel is a drawn with 1.5 standard deviations above and below a linear regression line, for those interested in such things.
I know my updating of this blog has been a bit sporadic. I’ve had some personal issues to deal with and it has been difficult to find time to update. I’ll do my best to be more regular, or at least more frequent.