Let’s talk about where we’re sitting right now in the broader averages…
The key decision level for whether or not more chatter hyperbole about the US China trade war narrative can take this market through this threshold.
Remember, it’s taken us to the threshold already.
If this happens I’m going to have to accept this…
STEP ONE: The Decision Level in the Broader Averages
If this level continues higher, I’m going to have to accept that this market’s willing to buy new highs (p.s. right now we’re looking at a fresh uptrend BUT it’s not there yet).
What would we need to see this happen?
A little more chatter past just “things are going great” with the trade talks. We’d have to see some agreements. However, this market’s been willing to rally the broader averages on just hopium.
So who’s right there at that threshold?
- Nasdaq
- Dow
- Transports
- IYT
And even the Russell’s been rallying.
STEP TWO: The Battle Between Two Things
This means what we’re seeing is a very interesting battle between two things…
One, the data and the macro.
Both are still very bearish. It’s downright awful. Now, when I say macro, I’m talking about GPD, monetary policy, inflation targets. This is the stuff that’s still indicating a global economic slowdown across more than just one or two countries.
The second thing?
The news — what I call hyperbole.
The stuff like US China trade talk. Whatever might be pseudo good, but doesn’t really have tangible results associated with them. Unlike data, right, Gang? The news doesn’t require timing or tangibility. So these two things are working in direct contradiction to each other.
This means what for market direction?
STEP THREE: What’s Moving the Market
Well the market’s been willing to rally up.
Short sellers have been hesitant to step out in front of the news because more of it inevitably comes. And the shorts are scared… and I can totally understand that. Why? We’re hesitant to fade this strength because we might get another round of US China trade talks, and the market tends to want to rally off this because of…
Hopium.
And let’s face it, eventually there will be actual results, and then the rally could be real.
But right now, the market’s moving on ‘hope’.
So where’s the technical analysis, Gang?
That’s just it. The market’s not moving on technicals. It’s utterly ignoring macro and data. It’s all focused on what the Federal Reserve will say, how much will rates be cut, and other news-related speculations.
Based on my analysis and understanding of hopium, I’m looking for some weakness into next week. I’m looking for this overbought market to sink right back down into the range, not into a downtrend, back into the range.
So let’s see.
