Market Report 18 January 2015

I went into considerable detail last time regarding the extraordinary price action and volatility we had seen on the Dow, with other indices following of course. Just reading back over those statistics, it’s still hard to believe. Looking ahead I said:
“I now think we are seeing a consolidation area forming – basically a larger than normal congestion area. When volatility goes sky-high, it always comes back to normal with time, so I think we are going to see some dust-settling and the oscillations should start to dampen down”
That is proving to be absolutely correct as the Dow chops around. Last time it stood at 17804 and it is now 17511. The P&F chart shows clearly the consolidation that is taking place:
Screenshot 2015-04-01 23.03.59
Four weeks ago the S&P500 was at 2070 and it has fallen since then to 2019. Again there’s a consolidation feel to the chart:
Screenshot 2015-04-01 23.04.41
The Nasdaq is also down over the last month, from 4281 to 4142, and not surprisingly, we also have a consolidation pattern here:
Screenshot 2015-04-01 23.05.22
So the situation on US indices is somewhat ambivalent. I’m still out of the market with my pension fund because in order to go back in with a large amount of money I need a compelling reason, and so far I haven’t seen one. I said that technically it was still a bull market, and that is still true, but exposing a lot of money to the kind of volatility we’ve seen lately makes me uncomfortable. It is also still the case that the risk from here looks very different to when I called the start of the bull market when the Dow was at 8268. Then the potential upside was massively more than the possible downside, and that is clearly not the case now. Also, in several weeks time, the bull market will be six years old. We mustn’t lose sight of that. When I came out of the market in September 2007 going 100% cash, I was a little bit early because the Dow peaked the following month, but what a great decision it was looking back on it because I avoided the financial crisis. So, to repeat, according to the charts, the bull market is still intact, but it’s not the same bull market that I identified in 2009 in terms of its risk/reward profile. For now, I will continue to watch and wait.
(c) Robert Newgrosh 2015
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission in writing of the author.  (So please do not forward it to anyone else)

Jan 18, 2015