Yes, the news was grim – and shares are bouncing

Yes, the news was grim – and shares are bouncing

The question in last week’s blog title – The News Is Grim So Will Shares Bounce Now? – was answered in the affirmative as I suspected. While there was much talk of a looming recession in the MSM with US and UK fuel prices at record high levels putting a damper on consumer spending, market sentiment had reached a low point. And that was the recipe for the share rally. So bad news was good again!

But now shares have rallied, the tide has turned with much bullish talk of inflation having peaked (oil prices and commodities have slumped) thus easing the pressure on the Fed to keep hiking interest rates so steeply. And yesterday the much respected U of Michigan Consumer Sentiment Survey data drew a more optimistic inflation picture than expected, thus boosting shares even higher late Friday.

But what a wonderful demonstration that the news follows the market – not the usually accepted cause-and-effect model that 99.999% of market participants still cling to, despite abundant evidence to the contrary. Cognitive dissonance rules the markets!

So now with many believing the Fed will cut back on its hawkish stance – and some even suggesting the weaker economy will force it to reinstate QE next year (!) – has sentiment recovered enough to claim the share bounce about over?

And can a devastating third wave down begin in earnest making the rally just a dead cat bounce?

This updated Dow chart from last week tells the story – a ‘bounce’ of about 2,000 pts:

And note the lovely Head and Shoulders reversal pattern complete with a large mom div at the Head that heralded the sharp recovery. A simple measure of this pattern offers a possible push up to the 32,000 area, which conveniently is also at the Fib 62% retrace resistance.

Also of note is the 13 June gap which is being filled currently. And by virtue of the large mom div last week, there is the potential for a more protracted advance – and that throws up the possibility that a gap could open up to the upside on Monday’s NYSE cash trading session. That would create a possible ‘island reversal’ which would herald a push past the 32,000 resistance.

If so, then we must consider the possibility for a more lengthy bull run this summer as opposed to my previous third wave crash scenario. I have a feeling that if/when the Dow manages to challenge the 32,000 region early this week, I shall be given clues as to which path to take.

Oil prices have been crashing is the low in here?

No market operates in a vacuum – they are all inter-related. As a case in point, oil prices have been under considerable pressure as recession talk and high gas/fuel retail prices have implied reduced demand for oil ahead. There is little doubt that oil prices have run away with themselves and bullish scenarios after bullish scenarios have been painted by the MSM.

But just as night follows day (and vice versa, of course), so oil prices reverse just when the bullish mood becomes over-extended. That is the night following day.

But given the severe pull-back which the MSM ascribe to the reduced demand picture in the recession that is here or at least not far away, will prices climb back up again? This would be the day following night.

A prominent feature is the highly significant uptrend line that possesses multiple very accurate touch points since January – at least nine by my count. This is an unusually large number – and is a testament to its very reliable status as a solid line of support.

And from the 8 June high of $121, the market pulled back sharply. But I was ready with my downside target – which I reckoned was to be on the line at the $102 region.

And lo and behold, the market declined and made a low just under $102 on Wednesday and then began a recovery,



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The Ags have also suffered

Just when everyone became sudden experts on fertilizers, crop yields and the amazing discovery that Ukraine has been a major producer of agricultural commodities for many years (who knew?), that is when the amazing bull runs hit brock walls, thus trapping the instant ag speculators.

Of course, the same thing happened earlier with the meme stocks such as Gamestop. Rank amateur traders/gamblers/speculators were attracted to these shares that were heavily promoted via social media like moths to a flame.

The process is as old as the hills – first the knowledgeable get in early, then the trend-following hedge funds with the big money and finally the media and their retail followers just when the tops are made.

The collapse has wiped out many – Wheat down from 13.30 to 9.30. Corn down from 820 to 660 and Soybeans down from 1760 to 14.

But is this presenting a great opportunity for us? Here is the Soybean chart:

Last week, the market has plunged to the Fib 62% and the pink support line. Momentum is very oversold and this should be leading to at least a decent bounce.

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