Let’s first take a look at the crude oil prices. While the DJIA was trying to halt its slide that was started after the September 19 record closing high, the price for a barrel of crude oil broke below 90 dollars. As the price of crude continues to fall, the DJIA followed. But as crude broke below 80 dollars a barrel, the market did not continue to fall with the price of crude. Instead, it has signaled a reversal on October 16 and the DJIA gained more than 11% before the reversal from the December 5 all time recording closing high. On December 5, crude oil closed at 65.63 per barrel.
(click on the chart to enlarge)
Next let’s look at the long term bonds ETF, TLT. On September 19 as the DJIA closed with a new all time high, TLT has already bounce off it recent low made a couple trading sessions ago. As the DJIA falls from its record high, TLT continues its rise to what appears to be a climactic short squeeze on October 15. The next trading session, the market sent out a reversal turning point message. When TLT started another run toward the high reached on the momentous October 15, the market once again signaled another turning point on December 2. Since the last turning point from the market, TLT has reached an intraday high of 127.72 on December 16 which exceed the previous high 127.72 made on October 15, and that is also the day the market halted its recent decline and started the more than 700 points 2 days rally. As the DJIA is getting near its recent all time high, TLT is showing a slight pullback from its recent high.
In recent days, there have been talks about how the drop in crude oil prices have dragged the market down, and on the other side some talk about how the drop in crude oil prices can be beneficial to consumers and the US economy. Then there are talks about the FED taking its time before starting to increase interest rate is good for the market, and talks on the opposite side that the low rate in the long term bond is signaling things are not as bright as they seem on the surface.
So where is this market going? To new high or back toward recent low? One might try to seek the answer from TLT, and other might attempt to hypothesize crude oil effects for an answer. But one certain thing the market has demonstrated time and time again is the “Financial markets remind us that no one knows how things will turn out...ever”. But there are repetitive characteristics that the market displays that give the student of the market the message on what the market is getting ready to do, and I have outlined some of them in this piece I wrote for my blog. Base on the natural behavior of the market, signals have not appeared to indicate the prevailing direction as signaled on December 2 has changed. As a student of the market, I have learned one should never try to predict the market because it will always humble you. Instead, the market will be very accommodating to those students that listen to its messages and learn to interpret them correctly.
Until the market has finished sending out holiday cheers, one should continue to be defensive and not to chase these sudden moves. Have a happy holiday everyone!
