Sterling Market Commentary for Wednesday October 10th, 2012

Sterling Market Commentary for Wednesday October 10th, 2012

A Look at Tuesday’s Market: The overall market moved sharply lower yesterday in a broad based move that saw almost every sector index I track move lower on the day as well. I will admit I was out of the office most of yesterday and missed the markets move lower; and as a result I missed what was getting the blame for the move lower.  However, when in doubt you can probably just blame the Europeans.  They are a mess over in Europe, and probably are going to remain a mess for a very long time.   In the commodities markets, Oil was sharply higher yesterday moving upwards by $3.06 to $92.39 per barrel, and Gold was lower by $10.70 to $1,765.00 per ounce.  In the grain markets,  Wheat was higher by $0.032 to $8.642 per bushel, and Corn was unchanged at $7.420 per bushel, while Soybeans were lower by $0.010 to $15.500 per bushel.

A Few Thoughts on Wednesday’s Market:  In looking at the charts from yesterday’s trading activity I was struck by the apparent breakdown and weakness in the vast majority of the charts I looked at.  While there is a good possibility several of these indices could bounce from these levels, another couple of down days will break the upward trend that has been in place since early summer and signal the start of a new downward trend.  The charts of the various sector indices I track can be grouped into 3 basic categories.  The 1st being the capitalization weighted tech indices that are very heavily weighted with Apple, Inc. ‘AAPL’.  Due to the excessive weighting of Apple within these indices as Apple has moved lower,  these indices have been dragged lower at a sharp paces.  Basically a kind of “Live by the Sword, Die by the Sword” situation.

The second category would be those indices that found support on either their 9 day or 40 day moving average.  These moving averages can generally be seen as a point of support or resistance depending upon where they are at on the chart in relationship to the price level on the chart they are being drawn on.  In the case when they are functioning as support levels, the movement through these support levels to lower levels is generally seen as a reliably negative indicator.  The indices I noticed on their 9 day or 40 day moving average include the Amex Pharmaceuticals Index ‘DRG’, the Amex Gold/Silver ‘XAU’, the Amex Broker/Dealer ‘XBD’, the Banking Index ‘BIX,’ the Amex Airline Index ‘XAL’, and the Healthcare Index ‘HCX’.

The third category is those indices that appear to either be in the process of breaking below or have already broken below their upward trendlines, which are typically pretty solid levels of support.  These indices include the Dow Jones Industrial Average ‘INDU’, the S&P 100 ‘OEX’, the S&P Chemicals Index ‘CEX’, and the S&P 500 ‘SPX’.  Another couple of days moving lower and I think these indicse will be in a clear downward trend.

The Dow Jones Industrial Average: The Dow Jones Industrial Average closed at 13,473.53  I am now looking at upside resistance on the Dow Jones Industrial Average at 13,692.59 on a closing basis.  I now see downside support coming in at  13,406.91 on a closing basis.  Current Expectations:  I think we may be seeing a short term top forming to the Dow Jones Industrial Average and there is a good chance it will move lower.

Dow Jones Transportation Average:  The Dow Jones Transportation Average closed at 4,999.56.  I 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.

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