Markets – Update – Jul 11
Back on June 29, I posted an article discussing the markets for the rest of the year. In that article, I posted some charts and that time I was anticipating a possible H&S (Head & Shoulders) pattern to form on the major indices.
Below are the same charts updated as of today July 11. As you can see we have a possible H&S pattern forming.
TSX – Clearly lagging other indices
Dow Transports – Hit a new high last week and we now have a possible double top. It's leading the industrials
Dow Industrials - A classic H&S pattern has formed and can only be confirmed if the price breaks below 11862. I certainly don't think that's a possibility right now.
SPX – Classic H&S pattern has formed and can only be confirmed if the price breaks below 1258. I certainly don't think that's a possibility right now.
Why charts are important in market analysis in addition to fundamentals?
We know markets are a discounting mechanism, so any news that's disseminated is quickly absorbed by the markets. Additionally, markets are remarkable at anticipating future events (barring natural disasters). So, can we tell what the markets are signalling right now? Are markets going lower amid fiscal concerns in Europe, economic slowdown in the U.S, high inflation in china etc etc…
The indications so far is NO!
Let's take a look at a different set of charts of the same indices. In this case, these are charts representing '% of stocks that are over their 200 day Moving Average'.
As you can see by the charts, none of them indicate we are going lower. Infact, the markets seem to be in correction mode and going through the usual summer doldrums. Indeed this is very positive given the uncertainties in the global economy.
Notice, the '% of stocks above their 200 day MA' are nowhere close to 2010 summer lows.