Dave’s Daily

The only thing interesting me this morning was the make-up of the US senate and that seems not to have reached the magic 60 seat level for absolute control.

We had a nothing day Monday, followed by a light volume rally yesterday and then a blistering light volume sell-off today. I’ve read a lot of blogs posting with certainty that a year-end rally is in the cards now with lots of people taking long positions. They must be disappointed today since they must feel suckered.

I’d call your attention to a few charts below. First, note the McClellan Oscillator which I post routinely demonstrating extremes moving rapidly from much oversold to much overbought. Also you should note how poorly the Russell Small Cap 2000 index has performed. The reason is because the hardest to manipulate given all the securities. This is also the case for Mid-Caps and so forth.

Let’s compare this to WSJ data just for fun.

We’re on the sidelines and that is the result of the extreme volatility, recent oversold conditions on weekly charts and the “weekly sequential” DeMark 9 indicator revealed in the chart below current through yesterday. This reading could result in a number of possibilities: the downtrend “may” be exhausted either temporarily by moving sideways, perhaps starting another leg lower again after a brief “reaction”, reversing course and heading up, or, if the trend is very strong the 9 might be ignored all together. But, below you can see a “reaction” which is also sometimes built within the 9 itself.

The election is over and it’s time to sober up. There are big problems ahead and the new administration will have its hands full. Based on what we’ve gleaned so far it seems many in this administration will have ties to the previous Clinton administration. That should make them more pragmatic politically and in methods.

Light volume is an issue. What does it mean? While there is a lot of money on the sidelines not much of it is trading or looking to buy. Risk aversion still dominates as the drip, drip, drip of negative economic data is overwhelming. There are investors and advisors anxious to jump the gun and get ahead of the pack or even start a bullish stampede. The news doesn’t yet justify that it seems. But, I’m always willing to stay systematic no matter where it takes us.

Tomorrow we get more news on retail, employment and an earnings announcement from CSCO. We’re getting toward the end of the earnings announcements. Friday brings unemployment data and that may shake things up since today’s ADP payroll numbers showed a sharp 157K drop in payrolls.

Let’s see what happens.

Have a pleasant evening.