Saturday, January 24, 2015

Jan 24 - Weekend update, more bullishness ahead or continued consolidation?

Looks like we are at a bit of a crossroads in the indexes sitting at the upper end of consolidation ranges.  It will interesting to see if we continue moving up, if so this will probably mean breaking previous highs in many of them.  What happens for the long term in upcoming months is a different story as the volatility has ramped up quite a bit and from a much larger time frame one might want to start looking for extended weakness as the chop and froth bubble further.  Given that the economic recovery has been a very gradual and slow building one, I am more inclined from a fundamental standpoint, much of this is priced into the market.  If one believes that is the case, the currently fairly high relative historical valuations and the increase of much more capital from both the debt and equity side entering the market makes me believe a longer term correction is not unwarranted, technicals aside.

As of now the indexes could be ready to break out this week or retest their bottom end of consolidation zones before making decisive moves in either direction.  I am currently inclined to think we will go north of where we are sooner than later based on the recent burnout in VIX.  Below is a study from 2011 from
Rob Hanna's studies referencing such events.

Urban Carmel's the Fat Pitch also mentions seasonality in his post this weekend amongst other factors.  It also includes quite a good review of top forming churn at the last long term cycles going back to 2000.

As for the indexes, the most promising is the QQQ which managed to finish in the black and is poised to break out.  Given, however, how whippy it has been we could see a pullback before retesting the upper trendline.

SPY and DIA get dinged on Friday but the selling volume was less than intense as you can see on the daily volume bar being well below normal.  Even if the markets dips a bit, I would be surprised to see aggressive selling volume to appear.

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