Monday, September 2, 2013

A Hank Schrader Market - "Tread Lightly..."

Market action has definitely deteriorated over the past few weeks with the indices across the board looking rather bearish from a technical perspective.  The Nasdaq is the only index currently above its fifty day moving average (barely) and distribution days have been racking up.  On the surface, it appears the market is in correction mode, although it is impossible to say if that correction is just a small 3-5% one or something more intermediate-term.  However, underneath the surface, many leading stocks are holding up very well and continue to chug higher even in the face of a market correcting.  This could be very bullish if the market can right itself. 

The Nasdaq is the strongest of the indexes at the current moment but looks like it could be putting in a head and shoulders topping pattern.  The action of the past four sessions smells very much like a bear flag, perhaps just delaying an inevitable drop below the key fifty day moving average.   If that breakdown occurs, it will be significant and will perhaps signal that a more intermediate-style correction is at hand.

Nasdaq Daily

Small caps were down nearly twice as much as the Nasdaq on Friday and looks to have broken a three-day bear flag pattern that was forming right below the fifty day moving average.   This index needs to get back above that fifty day before I would consider going long any smaller names.  

Russell 2000 Daily

The S&P and Financials are the weakest looking indices right now, as both are below their fifty day moving averages and have formed clear bear flags on the daily charts with confirming volume patterns.   It's going to take time for these two indices to bounce back and right the ship.

Financials Daily
S&P 500 Daily

A lot of the overall market direction going forward is going to depend on worldly events, namely the situation in Syria.   It doesn't seem like much clarity was given to that situation over the weekend with the President asking Congress (who are not in session right now I believe) for approval in striking against Syria.   If this situation remains uncertain, I don't know how it will be good for the market, but as of today, foreign markets are up which might bode well for Tuesday's open.   We shall see.  

Like I said earlier, a lot of charts are holding up very well which bodes well for the overall market if it can right itself quickly.   Nothing would surprise me here, but overall I would expect a lot of volatility over the next few weeks with perhaps not much overall movement (if that makes sense).  I share my "Terrific Twenty" list below for the week ahead and I would consider the names I starred below as potential longs but only if the market shows some strength.  

Terrific Twenty Part One
 Terrific Twenty Part Two
All Charts from TC2000, Courtesy of Worden Brothers, Inc.

Overall, with the Middle East situation as it is and the uncertainty that goes with it, this market will likely be very tricky going forward.   The best plan going forward might be (in the words of the infamous Walter White - SPOILER ALERT) to "tread lightly..."

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