One thing I have learned a long time ago is that the market will never ring the bell to inform us it has made a top or a bottom, or it has changed direction. I also have learned the market never hides its intention and it will always let us know what it plans to do. What it doesn’t tell us is where, when and how.
On February 11, 2016, the market caught me napping. Fortunately, with all the talking heads yapping about the Dow Jones Transportation index and their disbelief on its recent strength prompted me to take a closer look. To my surprise, the market put in a new non-confirmed closing low on that day. This non-confirmation implies the market will likely go higher. And since I’m late at reading this market message, this leads me to ask, “Is the recent rally the result of this change in direction and should one expect the market to be higher?” The answer is, “It depends.”
First thing to notice is not all the breadth indicators confirmed this closing low. This doesn’t mean it is an invalid signal, it simply indicate a retest of the recent closing low by the DJI is probable. Next is the recent small divergence between these two indices. Unless this divergence gets resolved soon, then the recent rally could come to an end and the odds for the DJI to retest its recent low increase. Although the expectation is for the market to go higher, until the above concerns are resolved, one should continue to trade within a short term holding period.
In this video, we will look at the recent market price action, levels to monitor for the near term, and a review of these MOMO stocks: AAPL, FB, NFLX, TWTR, AMZN, GOOGL and TSLA, along with a look at the crude oil, gold, US dollar and some bond futures.
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