The stock market continues on its merry way with what seems to be little rhyme or reason. As we see our technical indicators, the momentum indicators are weak for this type of record high move in the Dow, the trend indicators like the moving averages show upward movements, but the underlying technicals are much weaker than they should be given where we are. One of those indicators is the amount of volume on the NYSE. The volume over the last week was higher than it’s been but on Thursday’s big move, the volume failed to get over 2 billion shares. We consider this volume to be one of the reasons to remain bearish.
It is true that the public does look at the Dow and gets all excited about the fact that it is at a new high. Some of our readers let us know that the Dow was making new highs this past week. Sometimes this is to make conversations with us but it does get to the heart of the analysis situation, the Dow is Not the market.
We try to predict the direction of the market here and we sometimes change our minds but we like to do so when the market gives us a signal for a turn. We trust the market to give us those signals before the price moves so we have time to be proactive on our trading decisions.
Right now, this market has gone overbought on the momentum indicators and has produced a new high in the Dow but we remain bearish tonight after looking at several of our indicators. We think there is a short term high in place as of late last week. The market should at least try to correct this advance and when it does we will be able to assess the near term direction of the market, whether that is truly up or in fact down.
We do think that people think the party will go on for a long time. This is called confidence, something that the market rarely gives to anyone until near the end of a move. Just around the corner are earnings reports from third quarter and we wonder what they will say and whether the market can sustain itself on the news.
We received a comment last week, which we failed to mention. You may have seen it but it’s from October 3 and includes a link to Michael Nystrom’s article in the BULLNOTBULL.com website. We recommend a quick look over there for a good read. This article comes in two parts and going to the first will give you a link to the second.
This evening as we get ready to post, we see that the North Koreans are saying they did a nuclear test. The overnight futures seem to be reacting negatively to that news even though the US has made a statement that the test has not been confirmed. We’re not sure if it means anything but wanted to mention it as it related to the overnight trading.
Dow Industrials: 11,850.21 -16.48