“Usually when the sentiment on television is euphoric, it turns out to be the exact opposite,” Jeff Greenblatt notes, following the reaction to the FOMC Policy Statement.
On Wednesday Federal Reserve Board Chairman Jerome Powell changed course on interest rates, saying the Fed will adopt a patient attitude as “the case for raising rates has weakened somewhat.”
That’s probably a good idea given the geopolitical situation in the world. Recently markets have wrestled with Chinese trade talks and it is this writer’s opinion it will be very hard to put a deal together while the CFO of Chinese telecomm leader Huawei is under extradition orders. There will be more days of optimism where traders ride the slope of hope only to have the air come out of the balloon only a few days later.
There are also Brexit issues as well as the situation in Venezuela bringing uncertainty to the markets. Markets have been blessed given these two issues have not blown up but the situation in Venezuela could be close to a boiling point. The bottom line for right now is the S&P 500 (SPX) took out the recent high after doing nothing since Jan. 18. It was a very good reading that only spawned a smaller reaction. Here’s what it means. In Trading Chaos, author Bill Williams talks about the market giving us new bits of information. According to Williams, each new bar on a chart offers new information, which may or may not change the larger picture. Not all bars are created equal, and when a good vibration only produces a small reaction, it means something bigger is developing under the surface. Markets had a chance to fade in this sequence but they did not. Having survived this calculation as well as first major polarity, which was the big sideways pattern back in November, the door is now open for more upper testing.
What is the risk right now? Liz Claman on FOX Business said the theme of patience will be “music to the ears of investors.” I think Liz is excellent, but there is no such thing as music to the ears. Tom Hanks told us there is no crying in baseball and happiness is usually fleeting when it comes to the stock market. So, while the market has some staying power, Wednesday was the first day I started seeing some euphoria. Claman’s first guest after the press conference said he was pleased. If they are getting the euphoria here, where will we be in a week or a month? After 9/11 the stock market rallied for nearly six months. The SPX was down roughly 65 days and if we take a common 61% retracement in terms of time that would be roughly 40 days and we are only at day 24. What we learned today is the market has more staying power than just to hit first resistance but should hit some turbulence near 2800.
On the daily SPX chart (below) there are a couple of issues. Right now, they are sitting at a connect-the-dots trend line but there is also key resistance at the November highs. It’s also coming to 89-90 days off its top. These are not knockout factors but we are at risk for a shake of the trees. Usually when the sentiment on television is euphoric, it turns out to be the exact opposite. But at this stage of the game, a shake of the trees doesn’t necessarily mean the end of the rally. The bottom line for me is when the folks on television get happy, I get nervous.
If I have to pour cold water on anything it’s the PHLX Semiconductor Sector exchange traded fund (SOX) where two key members got hit on earnings in the past week. Nvidia Corp. (NVDA) got clobbered just a couple of days ago while Intel (INTC) also got hit. Apple (AAPL) barely squeaked by on its earnings this week.
The takeaway to a day like this is the technical situation on the surface looks decent, as an important reading, which was a threat to the market was taken out. That being said, we can see that the SPX chart is it at important trend line resistance area and also a key time window to the top. I’ve been following these time windows for 20 years, they are fairly reliable. For an 89-day window to create a lasting top, it very likely needs a vibrational square out to line up at the same time. As of now, its an unknown factor.
