Market continues lower as new administration fails to inspire confidence


The stock indexes started the day on a positive note, but as the day wore on and comments by those in power made it clear that the new government is really winging it, the markets succumbed to the gravitational pull of the primary trend. Sentiment is about as bearish as I can remember, and I can remember 1974. This is as bad. It is so bad that a violent bounce would not be a surprise. These sharp counter-trend rallies can occur without waiting for technicals indicators to give a clue. On the chart above you can see the potential double bottom where the cyan line is drawn from the November low. Every trader in the world can see that November low, with current prices right on that line. The advance/decline ratio in the sub-graph is also sitting on the same support line. A clue to a rally could have been a higher level on the advance/decline ratio, but that is not currently the case. With everyone watching and commenting on this support area, it would seem too convenient for the market to rally very far off this level, and do so right on schedule. There is no edge in what everybody knows. I have drawn the mesa adaptive moving average over the prices, but instead of the usual lines, I have a longer term line that approximate the weekly average but on the daily chart. This line has been good resistance for this entire downtrend. I would suspect any rally off this support would encounter resistance approaching the blue, downtrending moving average line. Until the trend turns positive, or at least until a meaningful divergence sets up between prices and the advance/decline ratio I will try to avoid the long side. I say try because there really are some excellent values as so many good stocks have been pulled down by the overall market. If I can’t help myself I may sell some puts or bull put spreads a standard deviation or so away on some very depressed stocks. Hip shooting and catching falling knives is not recommended and not in my trading plan.

Regarding gold, everyone I hear from is expecting another big sell-off at the magic $1000 round number. It has pulled back a bit. The trend in gold is still strongly up. there has been some minor momentum divergence, but I’d be quick on the short side as the primary trend can resume without warning. Gold has a habit of nasty, sharp shakeouts, and then a resumption of the trend once many traders are knocked off the bull.