Sterling Market Commentary for Tuesday November 20th, 2012

Sterling Market Commentary for Tuesday November 20th, 2012

A Look at Monday’s Market: The overall market rallied sharply Monday in a very broad based move that saw every sector that I follow move higher on the day. The overall stock market was obviously saw a rally from an oversold condition.  I, as probably do a lot of other market technicians, consider an oversold condition to be one in which the sell off has been far greater and quicker than the market normally moves.  For me personally, this is generally when a stock or index has moved more than 2 standard deviations from its 9-day moving average, and this is what we saw with last week’s sell off.  It is important to remember that a rally from an oversold condition does not mean that the sell off is over.  It is just basically the market’s attempt to show some form of normalcy and moderation.  In my opinion it takes a couple of days of sustained upward movement before you can declare the sell off over.  In addition to this snap-back rally, I think yesterday’s market benefited from several positive comments that sparked a rally in the shares of Apple, Inc. ‘AAPL’, and a flight to safety.  It is very important to remember that in times of stress and turmoil the United States remains the safe haven of the world.  The fighting in the Middle East is obviously causing a flight to safety that the U.S. Dollar and overall stock market is benefiting from.

In the commodities markets,  Oil was sharply higher by $2.36 to $89.28 per barrel, and Gold was sharply higher as well by $19.70 to $1,734.40 per ounce. In the grain markets, Wheat was higher by $0.036 to $8.416 per bushel, and Corn was higher by $0.116 to $7.386 per bushel, while Soybeans were higher by $0.114 to $13.946 per bushel.

A Few Thoughts on Tuesday’s Market:  While the major financial media outlets are attributing yesterday’s rally to optimistic comments on Friday of last week by politicians in Washington DC about the prospects of resolving the Fiscal Cliff before year end, I am not buying it.  As I discussed above, I think Monday’s market rally is primarily attributed to a combination of an oversold condition, a flight to safety, and an “Apple Effect”.  I think it is a fool’s game to believe that just because a few politicians in Washington DC made some positive comments about their willingness to compromise and reach an agreement that we should blindly believe that they will actually resolve the issues of the Fiscal Cliff without doing more harm than good. Let us never forget that the modern Democratic Party believes in radically higher government spending and severely higher taxes.  When the leadership of the Democratic Party has been in control in Washington DC., they have produced record levels of government spending and record deficits.  They are not a fiscally responsible party.  Additionally, the Republicans have proven to be not as skilled as the Democrats in the public relations game or in effectively communicating their message outside of their core base.  They have been consistently out maneuvered and failed to convert their advantage in controlling the House of Representatives into practical results.  The only real thing they have effectively accomplished is slowing down the Democratic agenda.

Until I see something that realistically causes me to change my opinions, I believe that the resolution to the Fiscal Cliff is going to involve an agreement to raise taxes on the very people who are invest in new companies that create growth in the economy, thus hurting economic growth; and that any agreed upon spending cuts will either be far smaller than need to be or will be pushed out into the future and indefinitely delayed.  In the end, we will have slower economic growth and larger deficits.  The economy will be in a far weaker position to deal with the next recession; and the United States will be well on its way to becoming a Banana Republic.  I hope I am wrong about this, but those are my expectations.

With respects to today’s market, I think we may see a day or so of slightly upward movement; afterwards I expect the market to turn back lower.

The Dow Jones Industrial Average: The Dow Jones Industrial Average closed at 12,795.96   With the change over to decimalization of quotes and the increased use of computerized trading, support and resistance levels are not always as solid as they used to be.  As a result they can be temporarily violated for a day or so before regaining their importance.  Despite the fact that the Dow Jones Industrial Average closed above my upside resistance level yesterday, I am going to maintain my current upside resistance level on the Dow Jones Industrial Average for an another day or so to see if it the Dow moves back below it or not, and if I need to raise it or not.  I still see upside resistance on the Dow Jones Industrial Average at 12,715.93 on a closing basis.  I now see downside support coming in at 12,118.57 on a closing basis.   Current Expectations:  I think we are starting a new trend lower in the Dow.  I am expecting the Dow Jones Industrial Average to continue to move lower and test 12,118.57 on a closing basis.

Dow Jones Transportation Average:  The Dow Jones Transportation Average closed at 4,983.71  I continue to see upside resistance on the the Dow Transportation Average at 5,215.97 and downside support at 4,873.76  and then at 4,795.28.  Current Expectations:  I think the Dow Transports are going to track sideways between support and resistance for the foreseeable future.

S&P 500 ‘SPX’:  The S&P 500 closed yesterday at 1,386.89  I currently see upside resistance on the S&P 500 at 1,367.59 and downside support on the S&P 500 at 1,343.36 and then at 1,334.76  Current Expectations:  I think the S&P 500 is going to move lower and test 1,343.36 and then 1,334.76 on a closing basis.

NASDAQ 100 Index ‘NDX’:  The NDX closed yesterday at 2,595.83  I see upside resistance on the NDX currently at 2,623.33 and downside support at 2,458.83 on a closing basis.  Current Expectations:  I think the NDX is going to continue to move lower and test 2,458.83 on a closing basis.

The Bottom Line:  I think the market will continue to move lower for the next few trading sessions.