Today’s market action as evidenced in the 15 Minute chart was pretty clear – it’s worried. If you were watching it during the session you saw the clear downside consolidation form at support – a perfect short opportunity. Which carried us all the way down to the key lower support level that was marked in the chart at 23,800. So, down from here? The fact that we stopped right at support tells me the market will rebound tomorrow. But what happens next could be the Sell Signal of the Month. A solid break back through 23,800 would tell us that players are leaving the game.
DJIA – 15 Minutes
The Daily Chart still shows the same long consolidation we have seen forming for about a month, with upper boundary at about 25,000 and lower at 23,000. We are now very close to the 23,000 level, and I expect support to come in there – if only temporarily. This market likes to buy pull-backs, and this may just be another one. I think at this point, 23,800 is key in the short term, 23,000 in the long term.
DJIA – Daily
The media and the administration are engaging in brinksmanship between “open the economy” and “protect the public.” A re-opening would clearly push the market higher. The move to open back up is generating a lot of noise, but at the same time seems slow and tepid. With the other side as loud as it is, and evidence from around the world that we aren’t out of the woods quite yet, the way to bet is for hesitation, which could be the reason we saw today’s weakness come into the markets.
It will really be interesting to see how the government reacts to a strong push down. So far, the U.S. stock market – and especially the NASDAQ – have enjoyed a free ride, with negative interest rates in Europe (you have to pay someone to store your money) and the US Market the last “safe” place anyone in the world can invest. Or at least, so it seems.
The February decline was based on the Fear of what would happen with the world closing up and the unknown outcome of the pandemic. Then the world did close up, businesses went under, and people lost their jobs. So naturally, the market rallied. Between Hope and Fear, the latter is the more powerful emotion. The 50% point in the Daily Chart is where it could turn down again. Or, this could just be another leg in the trading range. But no matter – Fear will win the day if it is turned loose again. And one significant driver could be the looming specter of deflation.
Consumer prices are dropping as businesses struggle to survive. Is this the start of a deflation? That’s where people stop spending because the same goods will be cheaper tomorrow. Google says, “Both inflation and deflation are bad for the economy. But of the two, deflation is more dangerous. … In this way, deflation discourages many desirable factors in the economy – production, investment, employment and thus economic growth. The major side effect is that it is a disincentive for the producers.”
Buyers since March 25 see the pandemic as an artificial reason for the market to lose so much value. After it’s gone, it will be business as usual. But there were other forces pushing the market down before the crisis hit – high PE multiples, for one thing. If you put all this in a pot and stir it up, what are you left with? A damaged economy and waning optimism. We believe the Chart Tells All, and can continue to use key Support 23,800 short term and 23,000 long term, to evaluate likely market psychology each day as it moves forward in this uncertain time.