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Publisher’s Note: Ian Cooper is on vacation this week, and he’s asked Stephen Oakes to step in for today’s Market Report. Stephen is the editor of Volume Spike Alert and is a contrarian’s champion, often beating institutional buyers and sellers to capture huge profits, including gains of 62% on CNXS and 37% on DRYS in just a few months’ time.
Investors and financial news enthusiasts have reason to remain upbeat about the market. In a recent report, the economy grew at a rate not seen in over a year, thanks to phenomenal improvements in international trade and business investing, particularly in the rebuilding of inventories, construction of shopping centers and office buildings. Thankfully, these areas have come to the rescue in bailing out the overall weakness in housing.
In fact, economic growth expanded at an annualized rate of 4%. It was only last month when the government had predicted a 3.4% GDP. Gross Domestic Product (GDP) is the broadest measure of economic health and plays an instrumental role in justifying the government’s need to print money while keeping inflation in check.
As I write, the Dow Jones Industrial Average (DJIA) is barely keeping its head above water, up to 13,298. Normally, news like this would send the major index up much higher. In my estimation, the recent economic data will likely prove to be one of many catalysts to come, in the bulls favor, of course. So, why isn’t the market reacting strongly to this great news? In order to find out the answer to this question it’s important to take a look at the technicals.
In the chart below, you can see that the 12,500 level was successfully tested back in the early days August, justifying April’s breakout.
More recently, the index has held up fairly well in the face of a Moving Average Convergence Divergence (MACD) sell signal. The sell signal occurs when the positive black line crosses below the red one. Of course, I could go into complicated mathematical details with regards to this indicator, but that would only distract you from the main point I’m trying to make here.
Notice how fast the MACD indicator is collapsing. If you were to draw a horizontal line between the indicator today and where it was at in mid-April, you’d see that today’s price level on the Dow, 13,298, is much higher than April’s -- roughly 12,750. This tells me that the markets are pulling back ever so slightly in an attempt to build up momentum for the next push north. This move should occur within the last few months of the year, simply known as the holiday buying season.
Keep in mind that the long-term trends are working in the Dow’s favor. “The trend is your friend” is a common phrase used all the time. In this case, I couldn’t agree more. Rarely do those who fight against the current come out on top.
The bottom line here is that the underlying indicators are weak in the short term while the Dow fights to hold ground. So far, it has done so successfully and the situation will improve over the next few months. Keep a level head and play the wind to your back.
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