Sterling Market Commentary for September 26th, 2011

A Look at Friday’s Activity:  The overall market was slightly higher in a relatively broad based move that saw a majority of the sector indices I follow move higher on the day.  The weakness in the market was primarily concentrated in the commodity related indices and stocks.  This appears to have been a result of Gold’s $100 selloff.  While it is not entirely clear as to why Gold has been under pressure lately, a lot of speculation has centered on Gold being liquidated to meet margin calls on equities.

Oil was lower by $0.66 to $79.85 per barrel, and Gold was lower by $101.70 to $1,637.70 per ounce.  Wheat was higher by $0.07 to $6.406 per bushel, Corn was lower by $0.114 to $6.384 per bushel, while Soybeans were lower by $0.25 to $12.58 per bushel.

A Few Thoughts Before the Open:  In looking at a chart of the Dow Jones Industrial Average,  I think considering the size of Thursday’s selloff,  Friday’s move higher was extremely weak.  Normally you would expect some form of bounce following Thursday’s move lower, and in my opinion Friday’s move doesn’t count.  As I write this morning’s blog, the pre-market futures are indicating an almost 120 point jump on the open.  While it might be tempting to see this as a rally, and I am not even close to considering it to be so.

The Dow Jones Industrial Average is deeply oversold; and we would need to see a rally back to 11,000 in order to be just 2 standard deviations away from the Dow’s 9-Day moving average; and then we would still be far from any form of a market rally.

In looking at my chart of the Dow,  I am seeing a sideways pattern with a downward bias. The highs are getting lower, and the lows are getting lower.  Not good if you are bear.  I spent a little time to see if I could find any cycles currently moving through the market.  I really couldn’t find a well defined cycle.  I did see a rough pattern showing a market hitting a cyclical bottom every 6-7 weeks.  This a rough and spotty pattern,  but it points to a new low sometime in the 1st two weeks of October.  This should not be construed to mean that we will see a rally of any significance following this bottom; what is means in my book is that I am looking for a new low, below the current 10,719 sometime in the 1st half of October.

The Bottom Line:  I am not expecting a market rally anytime soon and I am expecting the market to continue to move lower over the course of the next 2 to 3 weeks.