Mel's Subscriber Report
Note: This is a sample of Mel’s Subscriber Report available nightly to subscribers.
Short Term Trend None
Intermediate Term Trend Higher
Long Term Trend Higher
Short Term Outlook Neutral
Intermediate Term Outlook Lower
Long Term Outlook Higher
What We Learned from Friday's Action:
This was session 4 to close above the 5 DMA, session 4 to close above the 10 DMA, session 5 to close above the 20 DMA, and session 108 to close above the 50 DMA (longest streak since early 2007). This was also session 44 for the 5 DMA to close above the 20 DMA (the last streak ended at 51 days on 11/16/2010). One early sign of a sustainable rally or pullback is often a close above or below the 10 DMA. The SPX closed 13.85 points above the 10 DMA.
Most noteworthy among the Friday data was the NYSE tick action. It is impossible to not shake my head and wonder after watching the bulls get creamed on the extreme ticks yet the market close green. I have never seen this extreme on a positive close.
Also worth mentioning is that the streak of the ISEE ten day average being above 200 ended on Thursday with the streak at 60 days. That is the longest streak ever, eclipsing the 54 day streak in the summer of 2007 that led to the market top in October. But the ISEE ten day average once again closed above 200 on Friday.
On Friday, the non-farm payrolls rose only 36,000 instead of the expected 140,000. The market simply shrugged this off. There are no significant market moving economic releases for Monday.
The current market environment is +4. I’ve been asked: Why are we not long with the market environment on the plus side?
One thing that concerns me long-side here is that the market has a strong tendency to fill previous gaps after the non-farm labor report. And we certainly have many vulnerable looking gaps below us.
There are several parts to our entry signals but another key part is watching our Matrix. Our Matrix includes more than 100 data elements going back to 1950 and models those elements against past results. Currently, the Matrix shows a Neutral/Bearish bias and that precludes me from taking the long side at this point. Mel’s Oscillator is also hanging right at breakeven which doesn’t excite me much for either side. You might notice on our nightly data chart (at bottom) that this Oscillator was -82 after the January 28th Friday close and we were long for the weekend.
Bearish divergences can be found everywhere (see charts.) But the SPX has cooperated with only one pullback of any significance in the last five months. The last time we had two consecutive down days of three points or more was November 11th and 12th, 58 sessions ago. And prior to that was September 22nd and 23rd. So it is apparent that since QE2 was announced that pullbacks have been weak and short.
I posted this chart several weeks ago but it may be worthwhile to revisit this as a subscriber was asking me on Friday why is it that this market doesn’t behave as it used to. The simple answer is that this market isn’t following past patterns because what the Fed is doing is unprecedented. The Fed is intentionally pumping money into the economy to inflate the market because the Fed is convinced that a strong market will cause employment to increase. There is some historic validity to this thinking but the problem comes on the backend. How to deflate the inflated bubble without causing havoc? Fed Chairman Mr. Bernanke is convinced that he can manage this although history shows it has never been successfully done. But as long as the bubble continues to be inflated, currently planned through late June, it is going to be difficult for the equities to have a sustained pullback because the liquidity has to have someplace to go and with interest rates near zero, the equities are about the only place for this money to land.
Lesson to be learned: I pointed out last weekend that it can often be a mistake to treat a news related sell-off the same way as a technicals inspired sell-off. The last Friday in January was triggered by world news and therefore less likely to continue downward than if the sell-off had simply occurred without the news catalyst. This made it a safer bet for a bounce than if it had been triggered by the technicals alone.
From Thursday night’s report: “Key levels for Friday: 1304 and 1307 remains key pivots. Resistance on the upside will remain at 1312 and 1320. One the downside, support layers at 1300, 1298, 1291 and 1289.”We bounced twice off the 1304 pivot and spent most of the session around the 1307 mark, declining twice from 1307 and moving higher the last time. We closed just below the 1312 resistance layer, A Monday gap above resistance fits the pattern for this market.
Key levels to watch on Monday: 1307 remains as a key pivot level. On the upside, watch 1312, 1314, and 1320. On the downside, 1304, 1299-1300, and 1296 are key. A wide range day looks unlikely unless the news cycle comes into play.
No guarantees are made. Traders can and do lose money. The editor may take positions in recommended securities.