Let's Cut Through the Noise to Find the Trend

Note: We apologize for the delay in providing this report. The blog site would not let us publish yesterday, likely because of server maintenance. Information here is still relevant. There are a lot of forces that move the market and depending on how you wish to interpret (or even mine) the data, you can build a bullish or bearish case that sounds very convincing and appears very sound. Our personal position is that with oil over $70, the commodities market in general on a tear, and the bond yield curve threatening to signal a recession, this rally doesn't seem to have much gas in it. We may ultimately be right and the correction we are looking for will very likely come at some point. But what do the charts say? At this time the index charts say that stocks are discounting all of our worries. Again, this may change, but you have to trade the tape that is right in front of you, not the tape that you anticipate. The tape right in front of us remains bullish. Let's take a closer look at the weekly index charts to get a clear picture of the real market direction. The weekly view is a very good tool for stripping away the noise and revealing the true direction. Starting with the Nasdaq 100 (represented here by the QQQQ): On Friday the QQQQ dumped most of last week's gains as oil rallied hard in the afternoon. Is the QQQQ going to now crash? Well, the weekly chart says that unless the price will close below $41.25 anyone who calls for a reversal in trend should be treated as Chicken Little. The sky is not falling here. With the weekly close at $42 we now have a weekly doji right at support. With the uptrend in tact, this is bullish.

Moving on to the S&P 500 (represented here by the SPY): Last week the SPY bounced off the trend, which started in 2003 and closed the week at its highest level since January of 2001. We can find no reliable signs of distribution here. In fact, our calculations reveal continuing accumulation. This is not bearish folks. We don't know how the market is going to respond to the worries we mention above over coming weeks, but technically the S&P is set to launch much higher.

Now let's look at the semiconductor sector (represented here by the SMH): The tech sector is going to be a lead weight around the neck of the market if the semiconductors can't find a bid. The SMH, as you can see below, is primed and ready to rally off of support. Unlike the S&P, there are signs of distribution in the sector, but this does not appear to be a threat to a projected rally. Unless the SMH closes below $36 any remarks that the bears have taken control of the market should be ignored.

Bottom line: Despite where you think the market is going or where you think that it should go, those who wish to make money need to react to what the market is doing right now. Right now the weekly charts are bullish so we stay long. This does not mean that we can let our guards down and stop using good money management. Indeed now is the time to exercise even more disciplined money management practices. Take profits off the table by selling at least partial share sizes into strength. Selling into strength frees you up to buy the dips and gives you the freedom to look at your positions much more objectively than those who hold and hope. This is an important lesson that takes pros years to learn. Save yourselves the time and heartache by learning today what takes others a lifetime.