Tucker Report

Stock indexes managed to continue the rally that started on Tuesday. Today the Nasdaq was the clear leader, with the S&P trading on both sides of unchanged but finishing with a small gain. Volume declined. The chart of the QQQQ etf shows momentum up and that moving average lines (blue lines over prices) just turning up for the first time since the current downtrend started in early June. The high of the day on the Nasdaq almost touched the 50% correction level (the thick dark-red line). There is also a small gap down at this area near the end of June. That is probably a little too late to read much into gap fillage, and is probably more of a coincidence that a gap occurred right at that point. But that 50% level is still important to watch for a failure with a test back down. It seems rare to see back to back days with the markets moving in the same direction. One gets skeptical of any continuation when one gets conditioned to overlapping back and forth ranges for so long.
The chart to the right is the USO crude oil etf. I sometimes show this instead of the oil futures, as the etf eliminates monthly rollover and shows the same session times as the stock indexes. I’ve been expecting this market to break down for some time, and it finally has. The divergence (green lines) signalled the top in this instance. I pointed this out at the time but wanted to wait for the market to break down and then sell rallies if the trend moving averages turned down, which they have. Divergences look great in hindsight, but can be very misleading and expensive to trade in real time. As I’ve said before, the eye can look at a chart and pick out all the past successful divergences, but somehow the eye glosses over and ignores the high number of failed divergences. The breakdown of prices below the pivot where the red line is drawn was confirmation of the downtrend, along with the down crossing of the moving averages. The first pullback up was shallow, only getting to the faster moving average, but it did manage to pull the momentum indicator in the lower sub-graph back into the overbought area. Sentiment in the crude market is starting to turn negative with more and more analysts saying the bubble has popped. I think they are right, but there could be some nasty short term bounces, especially if sentiment gets too one sided too quickly. I don’t think they’ll make this downtrend smooth and easy to trade.
It’s summer and I’m a little slow in catching up on reading the news. I just came across an interesting op-ed piece in the Washington Times on Obama by actor Jon Voight. It is dated July 28th, so it’s now old news. It is always interesting to me when someone from Hollywood speaks their own thoughts and doesn’t follow the mandatory leftist mindset of almost all those who work in that industry. Only a handful of people in Hollywood can survive in their career after such dissension. There is another article in the same paper on August 4th by Andrew Breitbart discussing the fallout of the Hollywood reverse McCarthyism. Both articles are worth reading. The links are provided. Just click on their names.

The stock indexes closed with a healthy gain into the upper end of the recent trading range. The trend indicators are just now coming together, that is, possibly turning back up from the downtrend that has been in effect since early June. Momentum on the daily and weekly charts have turned up from oversold areas. With the way the indexes have been flipping back and forth every few days it is difficult to trust the indicators. The markets flipped right back up again on a Tuesday turn-around after three down closes, and right up to the top of the channel. The indicators suggest more upside, but this market is so erratic it wouldn’t be a surprise if this potential rally is short lived. Volume picked up a bit, but still well below that of the previous downmove. But then again it is August. The advance/decline ratio still looks awful. Commodities continue lower, with corn reaching levels not seen since March, and crude since early May.

I haven’t updated this blog for a few days. The stock indexes have been difficult to comment on as they have been going back and forth with wide swings, basically starting to form a sideways channel. Some analysts have called for a bottom. Sentiment is about as negative as its been for some time, and some support areas have attracted some buying interest, and some severely beaten down stocks have had some nice bounces. The way I look at the markets I just don’t see evidence of a bottom yet. The above chart shows the Nasdaq composite with its advance/decline ratio in the lower sub-graph. You can clearly see the steep downtrend in this ratio. It started down, with a major divergence, at the rally high last October, and has been declining since then, despite price rallies. The best bottoms historically seem to form when price washes out to the downside accompanied by a higher bottom, or divergence, in the advance/decline ratio. This would be much like the inverse of the divergence last October. This divergence certainly doesn’t have to happen, but it usually does. The S&P has a similar chart.
Commodities really got crushed today. The chart to the right is one example. I usually don’t show individual commodities other than oil and gold, but the September Corn chart shows how bad the decline has been over the last few week. Right at the double top at the end of June there was a major divergence between price and the double stochastic in the lower sub-graph. The trend quickly turned down with a gap, and the only rally which occurred at the end of July failed in the last couple of trading sessions (the very last small down-bar is the after hours action today, with the larger bar preceding it the day session.) This market, and many other commodity related markets look like they are falling out of bed. Many of the commodity related equities that have been the big winners recently have been hit even harder than the underlying commodities. Many of the oil stocks, gold and copper and metal stocks, ag and fertilizer stocks look to be in clear downtrends. I had been waring of the bursting of the commodity bubble for many months now. I thought that the trigger would be a collapse in oil or a big rally in the dollar. The dollar has yet to put in a good rally, but it does appear to have stopped going down, with the trend now appearing to be sideways. Oil has fallen, with the trend now appearing to be down, but it hasn’t collapsed yet, as have many of the other commodities, however many oil related equities are now in steep downtrends, far more severe than the price of oil. As usual, when all the momentum traders are on the same side of the boat, it is time to exit despite what is being said on CNBC and the bulletin boards about how this time it’s different and that prices are only going to go higher.

Today was yet another turn-around Tuesday. I’m not sure why the action on Monday can often get reversed on Tuesday. When I was a stockbroker many years ago, we often joked about the turn-around Tuesday effect. It seemed that if Monday was a big day, we could almost bet on the following day reversing whatever happened. Maybe pent up demand or supply from weekend analysis, and with the markets being closed, would at times cause an exaggerated move on a Monday, and then local profit taking would start the momentum turning the other way the following day, with momentum sometimes gaining enough to cause a complete reversal. It is a phenomenon that has been around for a very long time, although not occurring often enough to depend on. Today the consensus seems to be that the worst for the economy and the markets is over. That will probably be revised many times before the worst is actually over. But the long awaited drop in crude oil, and most likely commodities in general, is likely at hand. The chart of the S&P shows a couple of clearly defined pivots to watch, market by the green lines. The trend is down, but flattening. Momentum is down, but short term has kinked up from the oversold level. If the upper pivot is taken out, the trend could reverse to up. If that is the case, there will most likely be many retests to get on board. Most traders will doubt a trend reversal with such bad news being reported by the media every day. Some of the bad news is true, but much of it in my opinion is to make conditions look worse than they really are to help elect the media appointed messiah.
The chart to the left is of the Nasdaq/QQQQ. I point this out to show what a mess prices have been this last month. The longer term trend of the Nasdaq looks a bit more promising than that of the S&P. However, of the last few weeks there has been very choppy trade, with much rotation and backing and filling.

Not much to show on any new charts. The stock index trends and momentum are clearly to the downside. The advance/decline ratio continues to be very week and seems to be leading the way down, indicating broad participation to the downside. The recent rally was accomplished on diminished volume. And now the seeming resumption of the downtrend seems to be happening on even lighter volume. The easy answer to the light volume is summer, but new information can cause volume to increase at any time of year. And markets can drift lower on diminishing volume. Bulls might view the light volume as bullish if any rebound is accompanied by increasing volume, should that occur. At least now there are some well defined pivot points above and below the current price as points to test. These pivots are more clearly defined on the S&P than the Nasdaq. I’ll post a chart tomorrow.