Written by William Kurtz
While the U.S. stock markets continue at or near new highs, it is time to recall that hurricane season still has more than five weeks to run. To close the week, the NASDAQs, the S&P 600, and the Russell 2000 posted new Highs early, after gap-up openings; fell back, and recovered only part-way. The Dow Industrials and the S&P 600 posted their Highs of the day late in the day; the S&P 500 made a new High but the Dow did not.
Full chart viewable after the Read more >> jump.
The S&P 400 Midcaps did not come close to posting a new High, but left TWO 61.8% retracements behind. The first of the two formed a very nice countertrend A-B-C three-waves; and prices dropped precipitously from the top of Wave C. Does this mean that the trend has already switched from Up to Down in the S&P 400 MidCaps - and that it is, therefore, ahead of the pack? I don't know, but it's evidence, at least. The problem is that the second retracement doesn't yet look complete.
The Transports index was quiet, and did not post a new High.
So, price action was all over the lot. The market is very disjointed. The Dow still could go one of two ways: Down, before posting a new High, or Up, to a new High. It sits just above its 78.6% retracement, so the present price level is still a good launching pad for a downturn.
There are several open gaps nearby-below present price levels. They act as price magnets. I tend to think that the nearer they are to prices, the stronger is the attraction. I wonder whether this is an application of the law of physics - "The apparent brightness of a light varies inversely as to the square of the distance." (If I remember it correctly. I stand ready to be instructed!).
Investors are margined to the gills. Please see Doug Short's article, which contains the following graph:
Click on graph for larger image at Advisor Perspectives dshort.com.
The present level of margin debt is reminiscent of that which was in effect just before the market peaked in 2000 and in 2007 - so beware.
I'm reminded of the video clips of the implosion of the Dunes Hotel (and of others, including the Sands and the Stardust) in Las Vegas. Investors and traders are in the process of "drilling holes in their concrete pillars and inserting wired dynamite sticks in the drilled holes." They've just about completed that part of the job, and now they're doing the final wiring connection at the push-handle. The trouble is, in their intensity they've forgotten
Rule Number 1: When the final wires are attached and you push down on the handle, you're supposed to be at a safe distance from the building, not in it or near it.
Try to be sure you're standing off to the side, like little Elmo, who was standing motionless, well back from the railroad tracks, observing two freight trains quickly approaching each other head-on, on the same track. A man called from afar, "Elmo, why are you standing there?" Elmo replied, "Because I ain't never seen a train wreck before."
Try to be an observer of this oncoming train wreck, not a participant in it.
This will give a whole new meaning to the phrase "shock and awe."
Is this the right time for a Twitter IPO? What do you think? Do you intend to buy? Why, or why not?
Our eye is on the Dow. The Low of October 9 (14719.43) seems a long way off; but if the Dow were to drop below that number, that would constitute clear evidence that the Dow is on a bee-line course toward significantly lower prices.
Gold did "move lower this afternoon," as predicted in early in the day. There is the possibility that Gold is part-way through a very large countertrend, upside correction of more complexity than had been expected. If that's the case, then higher prices are in store - but probably not quite yet. First, I think that Gold needs to work off the downside momentum that's underway now. In short, Gold mini-peaked today at about 1 PM, and continued to fall until the market closed. This down move does not quite look complete. My best assessment is that prices will continue Down for a short time after the market re-opens. We will see what it looks like at that time, and during the ensuing hours.
Silver is generally following in Gold's footsteps. My best assessment is that Silver will trade slightly lower when the market re-opens. Its little downmove does not look quite complete, but it's close. We will have to await further development of the pattern.
The Australian Dollar continued lower to Closing, as expected. This is "one for the books" - for my own books and works, that is; but not for the standard Candlestick literature. The concepts of "Unorthodox Candlestick Reversal Warning Patterns," the "Osaka Clipper" Reversal Warning pattern, and "Unique Double Doji" are foreign to the standard literature.
The text and the marked-up chart of the AUD-USD which I sent out a day or two ago has now been published.
Click on chart for larger image at Wealth Creation Investing.
Here is the chart a day later: