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Markets Re-Evaluate July 18, 2014

Posted by Tom in Thoughts.
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Wow . . what a week.  It started with mixed earnings news and ended with geo-political turmoil.  Thursday saw panic (the VIX up over 33% in a day) then Friday came with a nice recovery.  Are investors nervous?  You bet !  The good news is we now have a fairly well defined trading range, roughly between 4450 at the top and 4340 at the bottom.

NASDAQ

As a side note I was pleased to see my market timing indicators call the bottom on Thursday as an “inflection point”; that is a close below 4363 would trigger the model going short (modestly).  I like it when multiple indicators confirm each other.

In any case I’m holding onto my theory that this price structure is Consolidation and not Distribution (see last week for why).  True, the “Money Flow” indicator (at the top of the chart) bounced off of zero, but that still is a “neutral” level.  And I’ll point out the volume last week (blue circle); nothing exceptional here, no significant signs of supply, just average stuff.  Likely this market is just “catching up” with itself, since it had gone up sharply and short order too.

I’ll still watch for a move higher on low volume (UTAD like / lack of demand/ bearish), move high on average or above average volume may be considered a break out (bullish).  A break below the support level would be bearish, especially on high volume . . supply coming in . . people getting out.  For now beware of the “talking heads” on TV (if they knew what was going to happen, they would NOT be on TV . . just say ‘in).

Next week is a busy earnings week with a number of high profile companies reporting.  If the news does not get in the way, the earnings reports should set the tone going forward.  Now is not the time to panic, but to keep you eye on the exit while enjoying the dance.  Just don’t be the last one out the door.  Here’s a list of sectors doing the best over the short term:

Top Sectors

That’s it for now.  Have a good week.           …………  Tom  …………..

chart courtesy of MetaStock; table by http://www.HighGowthStock.com; all used with permission.

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