Tucker Report

Today the stock indexes extended the range down slightly, but overall the markets held firm after such a large drop on Friday and with sentiment turning very bearish. Volume was very light, as would be expected by the small range. The indexes basically came into balance when it was obvious that the range could not be extended. Short term momentum is now getting quite oversold, with the trend still holding slightly up. There’s not much else to say at this point. We’ll know shortly whether this balancing action today is just a pause before more downside, or if the selling is drying up and a reversal back in the direction of the still alive uptrend occurs.
Crude was higher again today. It looks like those DCR etfs will go off the board if they can hold crude above $111 for a few days. They still have a huge premium. I hope the people supporting ethanol are happy with all the misery they are causing in the rest of the world with rising food costs. Higher corn prices affect more than just corn flakes. Ethanol just doesn’t make practical sense on any level, other than for corn farmers and traders riding the ag momentum. There is better technology available and being developed. And while we wait there is better technology to get at the oil we already have in North America without lining the pockets of countries that hate us.
I put a new link in my blogroll. It is Mplay’s blog, and this link goes to a page with some interesting thoughts on trading. Check it out.

The stock indexes fell throughout the day on Friday. The news is attributed to the earnings miss by GE, but more important was the less than optimistic outlook going forward. I pointed out the momentum divergence on this blog a few days ago, suggesting some pullback was in order. I also drew some potential support lines in the last post. Of course that support did not hold, as new information entered the market on the GE news. One cannot expect support based on previous swing points to hold when new information enters the market as the fundamental background has changed and the market has to assess that change. Momentum did not turn up at those support areas. Price on the Nasdaq/QQQQ is now sitting at the bottom of the uptrending moving average lines with momentum now slightly below the short-term oversold level. The trend still appears to be up as defined by the moving averages and market structure, so will prefer to trade the long side unless and until the trend turns back down. I still do not believe in putting in resting orders to buy in this case, as in the previous case, as I would rather wait for momentum to turn up, even though trade location will suffer. Even if momentum turns up at support, the next bit of new bearish information could enter the market and turn momentum back down. Nothing is certain. One can only weight the odds and use good money management when the market does not agree with the trade.
And, sorry this post was so late. Tradestation charts were not working for much of the weekend.

Stock indexes fell again today. I didn’t update yesterday as there hasn’t been a change since the post from last Friday. Also, I was trying to get my taxes done. I didn’t want to wait until the last minute this year. So this year I’m getting them in a week early. That’s a slight improvement. Regarding the past from Friday, I pointed out the short-term momentum divergences from the overbought area, as well as those small upthrust bars. The upthrust bars were not quick price moves up with quick rejection, but rather quite a bit of trading activity with higher values being accepted, as seen using the volume distribution profiles. However, when price wasn’t ready to push higher, the path of least resistance was another test back down, which occured. Lower prices today did find some buying activity. You can see on the chart of the S&P and Nasdaq etfs where I drew in bands of possible support. The upper lines in the pairs were drawn near the previous pivot, and the lower lines from past pivots or upper bodies of candles. My usual moving average lines (not on this chart) also shows price coming in between the two uptrending lines. Momentum is still down. Some traders would have resting orders at possible support areas, but I find it safer to wait until momentum turns back up in the direction of the trend. I often get bad trade location by waiting, but I also usually avoid catching a falling knife when support fails to hold, which it often does. It is encouraging for the bull case that this very negative looking market was able to shut off the selling and attract buying interest later in the session. Volume is still relatively light. If this general area can hold and momentum should turn back up with volume increasing, then there could be another impulse to the upside, and perhaps a bit less tentative.
The dollar fell once again. It seems to be building a very symmetrical triangle. If it breaks to the downside it would obviously be a continuation pattern, but after such a long down-trend, it could be setting up for a reversal up. I’ve been looking for any reason to get bullish the dollar. Every time something set up it failed and the dollar resumed the downtrend. At some point it will reverse the trend. Gold of course rallied on the falling dollar, in a counter trend move to what seems to be a downtrend. But that downtrend would most likely be short lived if the dollar breaks to the downside of that triangle. I’m still skeptical of these still crowded trades. Oil blasted to new highs in its still strong uptrend. One of these days fundamentals will overtake this market and the momentum chasers will rush for the exits.

I don’t have much to add to my comments from Friday. I had mentioned that there were some small upthrust bars in the past three sessions without much follow-through from the big up day last Tuesday. I did note that there was quite a bit of volume in those upthrusts when viewed by the volume distribution. The upside was tested again today with much more volume and higher value area as seen using the volume distribution, or market profile. To my way of interpretation of the profile this would argue for higher prices at some point, as higher values are being established and accepted. However, in the very short term there seems to be some momentum divergences, so a test back down would seem logical. Also, since those upthrusts are still there with four failures to push higher after the one day surge, it would seem that a test of the downside would clear the way for higher prices - that is if the test holds and lower prices are rejected. Sometimes the market has to go opposite of the trend to see if selling is attracted or rejected. This also would clear the short overbought condition and can give a safer entry point. Of course new information in the way of news can enter the market and disrupt or change any scenario. FOMC minutes are released on Tuesday and there is possibility some wording could cause gyrations. It’s hard to imagine what new information could come out of the minutes that hasn’t already been discounted, but it is possible.
Gold rebounded a bit within a downtrend, and oil is testing highs and still in uptrend. Grains fell off.

Stock indexes closed about where they opened today after a disappointing employment report. The bulls can argue that the market could have reacted to the negative news sharply on the downside, and the fact that the indexes were able to at least rally for part of the session and close without a big loss was somewhat of a victory. Bears can argue that there has been little progress after the big up day on Tuesday. You can see on the chart where I put the cyan ellipse that there are three upthrust that failed to attract buying, and each time the market closed at about the same location. Momentum is also getting a bit overbought on the very short term, and a slight divergence is setting in. There is also some major chart resistance at the pivots where I drew the yellow line. The market could easily pull back a bit to gather some strength before attacking that yellow line. It does look like the market wants to work higher, but maybe a little stumble first. It’s just a guess. It could overcome resistance without pulling back, but it would be nice to see momentum pull back first. You can see how the daily bars are wide ranging with many changes of direction from day to day, which makes it a flip of the coin to say what might happen a day or two out. But I’ll repeat that usually this choppy activity is more characteristic of markets trying to come off of bottoms. Not always, but usually. Tops are most often more complacent and with less chop.
I once again show the profile bell curves. The forth day back is just part of the trend day session on Tuesday. I cut off the bottom as the chart would have been too long. The three upthrusts I referred to on the candle chart above is shown on this chart as the price activity above the blue horizontal line. Often these upthrusts, when they occur at the end of a market move, will have a row of single prints to show a selling extreme. The fact that these profiles formed with a lot of volume means that the upthrusts are not the termination of the move. The lack of pushing value higher (the purple vertical lines) would indicate that the market has been fairly balanced between buyers and sellers. Buyers have come in at the lows and sellers have come in at the highs, and there has been much rotation back and forth. The market will come out of balance, and the odds look like the resolution should be to the upside, but a test back down first would not be a surprise and would not invalidate upside case, unless of course the lower test fails and selling is triggered. It is always best to be prepared for both scenarios, as anything can happen. I know it sound like saying the market can go up or it can go down, but that actually is the case. All one can do is weigh the evidence and see which way the odds tilt. Nothing is 100%. Although I’m sure the dollar bears and commodity bulls believe that bet is 100%. (For those unfamiliar with the profile there is a link to the CBOT on my resource tab where you can download an excellent pdf manual, as well as view some video seminars. It is the third link down.)
The chart to the left is the Baltic Dry Index. I haven’t posted this for some time now as there hasn’t been much to say. There was a huge drop just when all the bulls said the uptrend had a long way to go, and since the drop there has been about a 50% correction back up, and now it is going mostly sideways, perhaps with a slightly down tilt. With copper and oil prices bumping along the highs, and the US Dollar still close to all time lows, it is surprising that this index hasn’t advanced further. Perhaps the implication is that there is going to be more of a global slowdown than just a slowdown in the US. If so then there should be a shift to lowering interest rates globally, and with the US rates getting close to zero, the end of the dollar decline should be near. I sound like a broken record on the dollar, but it can’t go down forever. (can it…..?) The masses are short the dollar and believe it is a one way street to zero, and the masses are always proven wrong …… eventually.