Markets resolve questions during slow week

What's next for equities?

Sign, Uncertainty, Stormy sky Sign, Uncertainty, Stormy sky

Thankfully the slowest trading week of the year gave us a diversion like the GOP convention to keep us busy or entertained. You’d think not a lot would happen last week but something did. Two weeks ago markets hit a near-term peak and last week we showed you the European calculations that suggested a high was in place. Markets started out going sideways, but there was an invisible ceiling keeping them down. Our trust and patience in our calculations was rewarded as markets starting backing off from their highs.

To be sure, markets have not collapsed nor should they have given the light volume. But at nine days off the highs, something is materializing. It’s also strange that markets can’t seem to get a big going with the Greenback setting new sequential lows. In case you noticed for the past couple of weeks, the Greenback and Aussie Dollar have been going in the same direction, which is down. That’s rare and suggests one is in a sideways pattern that hasn’t materialized yet because when instruments that normally have inverse relationships go the same way it’s not a coincidence, one is moving sideways.

So here’s what we were concerned about last week. How could US markets continue higher with China setting new lows? That resolved itself. How could we have a VIX stay at the lows with a market that was flat? That resolved itself. Finally, we had a mild tell with the Hurricane active in the Gulf and oil prices did not spike. The psychology of the stock market at the time of disaster is a good indicator of what oil will do and in the void, what the oil market tells us is also an indication of where the stock market is at. In this case, markets came off highs and the oil market refused to stage a big bounce despite the fact drilling and refining took a 1 to 2 week pause. The media presented it as a small storm caused little damage. They can spin it anyway they like.

The one thing I’m not sure about was whether Friday’s up sequence was any referendum on Romney’s speech. I tend to doubt it. Too much confusion coming out of the convention along with the fact the race is still too tight to call. We’ll see more in a week after the Dems light up North Carolina. Is anything at that convention applicable to our work? A flat to slightly down market might indicate why the GOP only got a small bump. It used to be the challenging convention went in July and the bump was bigger. But the fact this convention played out the last week of August while people were on the final vacation of the summer might mean a lot of folks weren’t paying attention.

Next page: What else it means...

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