Violent markets can be meaningful, even if we're not necessarily seeing resolution out of a range. We know the range is now down at the 50-day exponential moving average, or the last line in the sand for the bulls. The level being 1971. The 20's didn't do a great job of holding up, so now we focus on the last line in the sand for the bulls, or again, 1971. The top of the range being the old high or 2011. We have been in an increasingly violent and whipsaw range that reminds me of SPDR Gold Shares (ARCA:GLD) when it was topping out for the very long term. Now listen up. These violent whipsaw handles can also be bullish, if price holds well enough, while the oscillators unwind from overbought. Handles can be violent, since both sides fight at critical junctures. The range can be more than 1% large, and, thus, things whip around to the top and bottom repeatedly.
After a while it feels hopeless for continued upside action, but you can't count the bulls out quite yet, although it's getting closer to doing so. The overbought oscillators have unwound quite a bit from 70-RSI readings to roughly 50. Stochastics from the 90's to 30's, or below. These readings are on the all-important daily charts. For now, it's still unclear which scenario is about to play out, so be extremely careful in how you proceed. Nothing on the aggressive side either way makes the most sense. Lots of cash makes a ton of sense, and avoiding froth stocks make the most sense. The handle is hanging barely, but it's not dead yet. It's not uncommon to test those 50's, so we watch, but losing the 20's wasn't a great start for the bulls. We're getting closer to resolution.
We will listen with great interest next Wednesday as Fed Yellen speaks about things like rates and the state of the economy, and what her medium-to-long term plans are with regards to those rates. She'll tell us what she feels will be good economically with regards to employment and spending. She'll probably repeat her stance on keeping rates extremely low, even if the economy recovers as she hopes, which for now hasn't even occurred. She's very afraid of this economy and knows in her heart that if we weren't in a bullied bull market created by Fed Bernanke and carried on since her tenure began, we'd be in a recession or far worse. Since that's all true I don't think she'll spook the bulls, but maybe it no longer matters. At some point one would think froth would take over no matter what she tries to do, and the market would fall harder, but I do think the market wants to hear her stance on things.
I couldn't sleep at night if I didn't add this statement to this letter. So in closing I will say that without provocation, and at any time at all, this market can fall extremely hard or worse due to the froth in it. It may never occur, but be aware of that possibility since the bull-bear spread is back over 40% with the bears at 14%. Not good folks. Not good, but we let price and oscillators speak. Still nothing truly bearish. Just be aware of the surroundings and play accordingly.