So I haven't written in a long time. I've still been around but I was studying for the CFA examination all this time and I felt it was better for me to take away some time watching the markets and blogging to free up some extra time to study. Anyway I'm back now, and hopefully I can get back to posting regularly. I guess the good news is that the market hasn't moved more than 20 points from when I last left. Its basically been trading sideways and I'm finding recent market activity to be quite uneventful, almost boring.
Unfortunately its not going to get much better until the end of the year I would suspect, I remember this time last year when we had our end of the year rally and I remember the same feeling even. However with the VIX now inching down near 20 we are getting 10-20 point days rather than 90-150 point days from this time last year.
The only thing I've noticed that has really made any significant type of change is commodities. Gold definitely had a nice parabolic run overshooting its channel, typical of a 5th wave in a commodity. Is it done? I'm not exactly sure but I'd like to think so because the dollar definitely is putting together a significant rally. The dollar should be off to a multi-month rally here and if that's the case watch out commodities. Its hard guessing anything near term nowadays but you'd like to think the dollar has to rest sometime and have some type of pullback which will give gold a last pop higher. One thing to note is that the market seems to be ignoring the dollars rally. A lot of us thought that once the dollar reversed higher the markets would come down. This certainly is not the case and one must pose the question if this is relative strength/consolidation building for the next move higher. To be honest I'm not quite sure, there's so many different signals that you can make the argument that the market will go lower or higher. If I had to say anything it would make the most sense the market continues higher as it has on every pullback since March.
I didn't prepare many charts for this update. I promise to do so next time. However I do have one chart that I find to be interesting of longer term history of market breadth.
What I have charted is the up/down ratio plotted with longer term moving averages (on top is 50, and the bottom is 200). As you see the breadth has been pretty strong since March. However both indicators are approaching the upper end of the range. Now if you compare to historical levels the 200dma is now in "overbought" territory and I guess you can say is generating a sell signal. The market can sustain a rally even in these conditions, however I've noticed that if both the 50dma and 200dma generate a common signal (by approaching extremes at the same time) then the market tends to react in the opposite direction. Its almost as if the market is telling you there is way too many buyers right now, time to sell we've gotten way too far ahead of ourselves.
If we use the logic behind this system it would make sense to me that the market should experience one last push higher so we can get the 50dma up into "overbought" territory. Then we can see some type of pullback. That is not to say a pullback cannot happen sooner, because the 50dma is beginning to roll over and prices going higher on weaker volume is never a good sign. Lets wait and see what is discussed in tomorrow Fed meeting. It is at least something to look at during the day while we wait for the volatility to creep back into the markets.
3 comments:
I think a lot of people expected the Fed to raise rates, so people bought into the dollar. The sell off in equities and commodities should have followed but seems like the Fed won't be raising rates. So no surprise that the dollar is weaker today and everything else is up.
Good to see you back and hope CFA went well. I need to start studying again if I want to take this in Summer.
Was that really the news? I personally didn't feel as if the market was really expecting any increases in rates any time soon. I think as long as the unemployment # keeps rising rates will stay flat, perhaps for another 6-9 months before we begin to get excited. On that note, I should come up with some charts showing the target rate vs the dollar vs equities. There's some macro/long run patterns, but there is no direct correlation between them all in the short term.
Also I hope I passed but I don't find out until end of January. So the question remains, which level should I start studying for? Because I can't wait til February or I'll be back in the same situation as I was at the beginning of this year with an even harder test.
Level 2. That stuff is SO much harder than level 1. Plus a lot of it is review so if you study for level 2, you are kind of studying for both.
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