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Is That It ? Did Santa Come ? December 19, 2014

Posted by Tom in Thoughts.
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Wow, what a week ! Massive moves down, then up.  Hard to believe and even harder to follow.  Just when a price trend was confirming, Bam it changed, and changed quickly.  As the chart below shows the Sentiment indicator has been shaky for awhile, then switched to an outright “Bearish” position which it continues to show.  The “Money Flow” (red histogram) indicator at the top showed softening over the past couple of weeks then moved decidedly negative, only to switch and head back toward “Neutral”.  (click on the chart to enlarge)

NASDAQThis whole V recovery could very well stop at overhead resistance which I spotted in at the 4790 level (dashed blue line).  Most US indexes are back to near the previous highs, so the “truth” of this rapid recovery may be at hand.

I note the massive increase in volume on Friday, but keep in mind this was options & futures expiration Friday (the 3rd Friday of the month), and volume is usually high as positions get “squared up” from expiring derivatives.  I say this because the buying demand is likely not what it appears with such a volume spike.  I remain very cautious in here, with hedges still in place which puts me in more of a “cash neutral” position.  Trying to catch a “falling knife” down or a “rocket ship” up is not my cup of tea.  I follow trends and try hard to reduce risk.  These V shaped moves are very difficult for anyone to follow from an investment perspective.

Next week is a shortened Christmas week and activity is expected to be quite low.  The danger is the markets can be moved easier with low liquidity, so let’s observe, but know that we may have to wait until the week after for a solid readout of strength.

Wishing all of my readers Happy Holidays this past week and next.   ………..  Tom  …………

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