4-10-2016 Comments

The Fed meets tomorrow in a special session for unknown reasons. Well, their purpose has been to prevent the orderly correction of the market for a long time; I guess they will continue. Clearly, their policy of rate increases has run into a problem. I don't know that this level of market interference has occurred in the past, at least in the Western world. I don't even know if the Fed will report findings of their meeting. I have no doubt that central bank policy will end badly, but I remember that the Japan market top was in 1989; they have been propping up the economy for 26 years. Who is to say that the FED can't do the same? Japan may be the canary in the coal mine that may live for a long time.

The analysis I reported last week, stated that money inflow into brokerage accounts may have put a floor under the market. From 2010 through 2015 the S&P500 was up 63%, but brokerage accounts assets under management went up 137%. Money is arriving from somewhere.

Watchlists are updated. On the long side are ALK, LUV, OLED, and ORLY. On the short side are AAPL, ABC, AMBA, DATA, and IDTI. I took small profits in MTSI at the Friday close. My reason for selling was that it failed to hold its double-bottom 4-March pivot point breakout at 41.32. I had bought it 7% lower in the base around the 50-day. If institutions fail to support a stock at its classical pivot at the Friday close, it can be a reason to move on.

We now have six distribution days in a 25-day look-back window; this is a reason for caution. I can state that every time we have run into trouble in recent history has been a time to buy; this will go on until it doesn't. Most of my market top finding tools are broken. Nothing has changed in the classical picture that we are in a "head test" regime of a head and shoulders top formation. In fact, we are on a second test. The NASDAQ would need to move up more than 5% to 5125, challenging a declining tops resistance line before the longer-term bullish case could unfold. Right now we are dancing at the 200-day moving average, a place that in history has rejected bear market rallies.

I am maintaining a long posture. Some experienced investors I know are only selling rallies. Time will tell, but I am betting on the Fed and the rest of the central banks to continue the madness. I do not believe that we can have a robust rally with declining company earnings, just more of the same.