From a purely price action, macro variable perspective, today was the most important day of trading we have encountered thus far in 2012. It marks a point where the nature of the markets may change from docile and smiley faced to more aggressive and nefarious. We have entered a window in time and price where the price action will likely be much more choppy and less “trend friendly” if you will.
Here are the reasons one by one, followed by illustrations:
- AAPL was mentioned in a post last night. Today was the icing on the cake. Volume was substantial while the price ended right in the middle of its range. Volume today was the most for an up day since the enormous earnings gap up over a month ago. The price action screamed of distribution as the stock was essentially spinning while large sellers came into the picture distributing shares throughout the day. AAPL has crossed a key round number (500) by almost exactly 10%. The 10% number seems to be the “get everyone to believe” cushion following the obliteration of a key round number that everyone is watching. We eclipsed the $500 million market cap number as well…another key round number. And we have the generational trajectory that AAPL has now exceeded acting as gravity beneath the stock. AAPL is THE market leader. Therefore, it needs to be a prime consideration in any projection for a disruption in trend.
- The Nasdaq Composite hit the generational trajectory point I mentioned last week on the dot today and proceeded to put in a high volume reversal. The chart is below. This is significant in that it shows that the Nasdaq is already recognizing this as a formidable opponent going forward. The recognition of this point as an opposing force creates a window. That window creates a disruption in trend that will cause the market to become choppy from this point forward. Again, I have illustrated these thoughts below to clarify my thinking.
Are we going to tank back to the January lows? Absolutely not. I said choppy. Not an all out bear. It’s going to become a more challenging environment into April and May.
- The Nasdaq 100 hit a high of 2645 today. 5 points short of the 2650 point I mentioned in this weekend’s chart review. This qualifies as a touch of the generational trajectory point. Just like the Nasdaq Composite, this touch now opens up a window for questionable antics on behalf of the market. The ease of trend and profitability will shape shift going forward. Illustrations provided in the chart below.
- The CRB (commodity index) already reversed off of its trajectory points mentioned this weekend. Commodities have been leading the equity markets over the past couple of years. Ideally, a rising commodity market and a rising equity market create the most stable environment for both to flourish. They don’t seem to function well without the help of one another.
- Dow Transports look like they are on the verge of breaking the important trend line I mentioned this weekend. This index now matters.
- Gold and silver put in the reversal of all reversals today. Again, the ideal scenario for the market is to have all members of the “reinflation trade” move in lockstep. Gold and silver moving counter to the equity market has caused problems in the past, I don’t expect this time to be different. Not an end of the uptrend, but a disruption and more violent equity market will emerge now that its friends are no longer at the party. Today’s move in silver was a complete anomaly. The retest I spoke about last night has failed. Both sides of the trade are open to excessive risk.
- All of this happened on the day that Bernanke spoke about to Congress about monetary policy. It makes absolutely no difference what he said. It makes all the difference in the world that the market reacted to it the way it did across multiple asset classes.
- All of these generational trajectory points and round numbers are converging at a single point in time. The Dow, Nasdaq, Nasdaq 100, AAPL and CRB are all facing the most crucial of technical areas. They will need lots of work to get through them, especially given the convergence. A multi-month affair at a minimum.
Here are the illustrations of the Nasdaq and Nasdaq 100:
click chart to enlarge
I don’t have us seeing any serious downside (5% or more) until April/May at the earliest. For that reason, I am willing to deal with a change in market character and stay put in my equity long positions without hedges.
Sound stock picking will win in this environment. Carelessness won’t.