First what everyone really wants to know: where is the market(s) going?
There are a lot of markets and because of limited time and space we will tell you the direction of the four primary US stock market trading indices. They are going up. We don’t have a clue how far, but it the Nasdaq 100 is right at its 2007 high and the Russell 2000 is only a bit over 10% away from an all-time high on the heels of over 100% gains since the March 2009 low. The S&P should reach 1250-1300 with little problem. The Dow is lagging and due to outperform and play some catch-up.
Predictions and forecasts can be found all over the internet, but seldom is given what will invalidate the prediction and what to do it the prediction is indeed invalidated.
Here are the intermediate term levels that must hold for the above assumptions to remain valid:
S&P cash: 1180-1171
March S&P mini: 1173-1162
Naz 100 cash: 2106-2085
March Naz mini: 2104-2082
Russ 2000 cash: 707-700
March Russ mini: 703-692
Dow cash: 11050-10913
March Dow mini: 10989-10860
If these levels are taken out it will probably generate extreme “oversold” (very dangerous label – subject for another time) readings. That should set the stage for a rally. It is during that rally that shorts could probably be attempted, but we will cover that if/when.
Here are the shorter term levels. Closing below these levels is the initial warning something may be awry with the uptrend. Think of these as the “lean” for long trades in a shorter timeframe:
S&P cash: 1225-1218
March S&P mini: 1218.50-1211.50
Naz 100 cash: 2194-2183
March Naz mini: 2189-2176
Russ 2000 cash: 762-754
March Russ mini: 757-747
Dow cash: 11318-11276
March Dow mini: 11216-11168
Shorter term support/resistance levels can be taken out in counter-trend retracements on sharp and short-lived corrections against the trend. If the above levels are taken out, it should not be by much or for long, if the immediate rally is going to continue into the end of the year.
Remember, this is the most unbelieved rally since at least 1982. Until YOU believe, the trend is up. Oh, and until levels similar to those above begin to break to the downside. Oh, please let me know when you start to believe. When everyone starts to believe is one of the signals to exit the Polar Express.
Now, back to the tag line. If you are one of the overwhelming majority of the people that has any interest in the markets at all, from the institutional investor to the grandmother managing her utility portfolio, it is likely you have an illness we will call “Fed Obsession”. This is just one strain of a disease that has existed since cavemen traded clubs and arrowheads. It is characterized by the attempt to attribute meaning/cause/blame to market movement, usually because the market is not doing what it “should” be doing.
Which brings us to an inconvenient truth: The market is actually doing what it should be doing — it is facilitating trade. The underlying tenet behind Auction Market Analysis is that the purpose of the market is to facilitate trade. The crowd confuses that with their idea that the purpose of the market is to facilitate trade the way they think it should be facilitated. The 5% or so of the people that make money trading understand the difference.
Forget the Fed and start paying attention to what the Auction market is telling you. It is consistent, objective and tradable. It has been “working” as long as there have been markets.
Tom Alexander is an expert in Market Profile. You can learn more at Alexander Trading.