This is one for the ages, this relief rally that is knocking on the door of becoming something more, all the while driving a lot of people absolutely nuts. That is because it is taking its own sweet time in declaring itself to be something more than a bounce or alternatively, making clear a bounce is all it is.
Human with the active brain goes to bed at night with the market having closed in a little pullback that has the look of a bullish consolidation. Still the market is down from the extreme target (SPX 2815) and human thinks “well, maybe… “. Human wakes up and of course, all too predictably this is what he sees…
The headline at Investing.com states…
We reviewed the cliff dive in various economic reports last weekend in NFTRH 540 and have noted Callum Thomas’ view of a cliff dive in EM import volumes and several other US and global economic indicators that appeared to just fall off a cliff. We also tracked GDPNow and its cliff dive and subsequent partial bounce back along with he who will be a significant global economic decider, Doctor Copper.
If you click the headline above you’d come to an article that states…
“Business surveys from China and Europe showed that the economic situation there wasn’t quite as bad as initial readings last week had suggested.”
Okay then, we have our bull rationale. Moving on, let’s see what the charts say. I will preface by saying that if the market tells us to be bullish for more than a bounce that is the way we will go. If it tells us otherwise, we’ll have to go that way. One thing we will not do is argue with the market in support of ideology, TEAMwork, dogma, fundamental views or any other argument. Price is the ultimate argument.
At the time of this writing Dow is set to tack on +177, which puts it at 26,093, still below the resistance/target zone. MACD has a rollover look and so too does RSI. So, this morning is annoying for an active or would-be bear, but Dow is lower than its recent high. Period.
SPX is a near clone of the picture above. MACD & RSI look suspect and price is below the recent high, which barely tickled the 2815 level (Q4 2018 highs) we’ve been watching. This morning’s activity would have SPX up 17 to 2802 and into the resistance zone.
Finally, we have NDX with its rolling MACD and price in the resistance zone. This morning’s +53 pre-market has it up to 7150, around the previous high but still in the resistance zone, after holding the SMA 200 as support.
MACD especially, on all 3 items, looks suspect. But a point here. Though these indicators appear to be triggering down another meaning of MACD trigger lines that are pinched together is that they are no longer overbought. I have seen rolling MACD with down triggers fail to resolve bearish about a million times in my life.
Prices are – in pre-market at least – breaking out from what look like very short-term bull flags (with the caveat to this scenario being yesterday’s elevated volume, which is inconsistent with a bull flag) but also prices are still firmly in the resistance zone.
The theme has been that if the indexes break through these areas they will likely go on to top-tests, as have some US sectors already. That does not mean the markets go full bullish, no worries, set it, forget it and party on Garth (well for many it would, but we would transition to a wider scope of a bullish short-term with bullish long-term potential, but also failure potential based on indicators yet to come).
For now, the “bounce” rally, fully anticipated by us as of the Christmas Eve massacre, is still on. Typical of these bull expressions, it’s now being powered by greed on the perma-bull side and also a big helping of Plunge Protection Team/Fed Dove crap to gall the bears, many of whom are giving up the ship, as I see anecdotally at least. Meanwhile, the market is going on its time frame, not yours or mine.
What more can a relief bounce do? It’s got everybody screwed up and in a way, that is perfect. We will need to mix patience with incoming signals and we’ll be just fine.