MARKET COMMENT
October 27, 2008, Courtesy of Dave Fry, at ETF Digest
Before the open things looked bleak as Asia and Europe equity indexes were being pummeled. Surprisingly US markets rallied quickly off the pre-open and opening lows on not much news until positive home sales data gave bulls another reason to pump things. We turned positive, but in the end, no one wanted to stick around on the long side and stocks were in a sharp free-fall into the close.
Volume was respectable but breadth continued showed continued distribution.
The following chart may be the only chart you need to see. I posted Wednesday the 10-year monthly chart and here it is refreshed.
I know everyone is looking for bottom-picking opportunities; is sitting on stock they still wish to sell; waiting for a rally and so forth. Below is a weekly chart of the NDX 100 Index with Tom DeMark “weekly sequential” annotations. I won’t go into how these are calculated but I wish to draw your attention to the “8” under the last price bar. This means that this week barring a moon shot higher of 500 NDX points a “9” will appear. This often signals the end of whatever trend is in place but not always. Not always? Yep, when trends are very strong few technical indicators function well and this impending “9” could see the market blow right thru it lower.
The chart below is from our internal proprietary systems with DeMark overlaid. It is deliberately abbreviated but I just wanted to point out the current condition on weekly charts from last week.
I’ve used the above image of our little horror film friend to describe US consumers. You can’t stop ‘em from shopping. There have been continuing reports of his death but then that sequel keeps returning. Now, unless the Fed and Treasury mail out Christmas gift cards to taxpayers from Walmart et al, the dude is toast.
The week is young but the month is old. October has been lethal to investors. Most technical analysis is nearly dysfunctional as the velocity of the decline is too rapid for most indicators to be effective. It has been routine for the DJIA for example to experience 400-500 point intraday swings. That’s why we’re featuring “monthly” charts to give us a better perspective.
It’s also why we’re almost 100% in cash.
Now we have the Fed meeting and an obvious interest rate cut. Is this already priced-in? I should think so.
All should be prepared for more not less volatility. Things will settle down eventually but when is uncertain. We noted the “possibility” that according to intermediate DeMark Indicators this downtrend could be exhausting itself, if only temporarily, this week. We’ll see.
Have a pleasant evening.
Disclaimer: The ETF Digest is long FXY, short FXB and FXC.
