Thursday, July 9, 2009

Stock Market Update - July 9, 2009

The green line on the hourly chart is a function of price and measures the strength of the current price cycle from overbought to oversold. Tonight the hourly chart show that price is overbought ... this does not mean that price will automatically increase from here. It is basically telling you that I would not add a new position here for shorts unless something occurs like a massive system banking failure. I admit one problem of technical indicators is that they will not give you an answer of how much price will move in the future when measuring the cycle ... only that a cycle appears to be in motion in a specific direction, technical indicators can help with support or resistance in price or measure of overbought or oversold conditions. Technical indicators in my opinion never really tell you by how much price is going to move in a certain direction ... only that it appears the current direction may be exhausted and a new direction might begin.

Picture of a daily chart ... money flow is still pointed down as well as the green price indicator. Today's market brought $1.5 billion of cash inflows and we had a 68% up volume day. However, volume was very light. If we do not pick up some buying on HEAVY volume ... we just may see the bottom fall out of this market in the second half of the year based on the unemployment numbers. I talk with several business leaders each week around the country and they all tell me the same story of how bad current market conditions are out there. If the unemployment numbers continue to move higher and stay high for a period of time people will have fewer dollars to spend on consumer items thus mitigating overall aggregate demand. Something I'm currently experiencing with a business I own today. I get it, I'm feeling it and I'm seeing happen with other people.
It has been a few days since I've posted the next two charts. Here is a look at the daily chart for the US Dollar. The price trend is still pointed up as measured by the green line (function of price and the direction of the intermediate cycle). I believe this spells trouble for the equity market.

Junk bond market has weakened over the last few days ... but it looks to be making a near term bottom ... do watch out for the blue line above ... it is a measure of money flow and it has turned back down. When the junk market turns down in price ... the market has followed in step in the same direction.

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