CLASH OF THE TITANS: BULLISH AND BEARISH INDICATORS EATING EACH OTHER ALIVE
I'm torn to be honest. I have numerous sentiment indicators flashing sell. Yet what I'm seeing technically tells me there may be more upside ahead. It's a clash of the titans of market analysis. I think it's best to stand back and allow them to work out their differences.
So instead of doing my analysis of 5-10 charts for the week ahead, I would like to do some lyrical therapy tonight. I say lyrical because when I write I feel like Kool Moe Dee. I don't really know how my article will end up, I just like to flow. And I say therapy because by the end of my flow, I feel like I have gained that much more insight into what I'm really thinking. It's my way of hiring Molly Maids to come clean up the clutter in my mind.
Let's start the process and see if we can all get in touch with our inner kundalini.
On the bullish side of things I'm seeing the following. Some charts to illustrate:
AAPL
QQQ
USO (Oil)
On the bearish side of things, here are some observations:
- I have a screen that filters for short squeezes. Last week it showed me the highest number of stocks in many months. A sign that the bears are throwing in the towel. Typically this is the final step before a bull market is turned on its head.
- Margin statistics are showing that margin debt is reaching levels that have historically marked important tops in the market. I discussed this a couple weeks back here.
- There is a divergence in market leadership taking place. All healthy rallies begin and end with technology leading the way. It has been this way since the mid-90's without fault. Suddenly we have the industrial names and transportation, as one example, leading the market forward.
- The leadership within technology itself is even seeing signs of fatigue. The reliable leader that is the semiconductor sector (SOX) is lagging severely behind the Nasdaq 100. And then there is the issue of the Nasdaq Composite outperforming the Nasdaq 100. Meaning that the traditional small to mid cap names are the preferred vehicle for investors as opposed to the traditional large cap tech names. A sign of speculative excess perhaps?
- The moves I have been seeing in Chinese stocks of late is very Phase 4 in behavior. Sloppy, speculative, spread across multiple sub-sectors. Indicating that speculation is rife.
I have encountered moments like this before. Caught between believing in one group of indicators versus the other. Both have proven valuable at different points in my speculative career. They both have their place and time.
I have found that ultimately my grasp of what the charts are telling me takes precedence over all else. I have experienced the evaporation of millions of dollars at points in my career when I have got caught up in forms of analysis that appear sexy, but are corroded from within. I have learned to stick to what I know and do best. That is picking long-term holdings in the micro and small cap sectors and reading the markets using price patterns that I have come to understand fairly well.
With all that said, I'm gonna have to go with the charts here and put all else in the caboose.
The fog has cleared. Thanks for attending.
