Wednesday was a classic "congestion day" -- at least, in my parlance -- as even though the market staged a seemingly good rally, it was really only bringing the charts back into equilibrium after the recent quick losses.
The way I measure whether a chart is congesting or trending is with my fractal dimension indicator, which is a real-time calculation of whether a chart more closely resembles a one-dimensional line (indicating that it's trending, or moving like a line), or a 2-dimensional plane (showing that it's moving more randomly, filling in the space of a plane, and hence congesting).
Here's how the current 60 minute chart of the S&P 100 (OEX) of 100 large-cap stocks looks.
This 60 minute chart is now once again fully energy-loaded, and in a position to start a pretty good move. Since price put up a white candle through a simple 20-period moving average, at this point the odds favor a little uptrend. But the more important 150 minute chart isn't quite there yet, as it still looks like it needs to store up some more energy.
With options expiration looming on Friday, it would be natural for the markets to move into a tight, narrow trading pattern over the next two days. The last two days of an expiration week are actually perfect "congesting conditions" for the market.
In order to get the charts across a wide range of time-frames fully congested and ready for another trend, the market will likely drift around -- and probably slightly higher --through Friday. This also serves the purpose of making all the newbie shorts squirm a little bit, which is a necessary part of building a bigger trend in the market. Prices have to juke and jive enough to shake out all those who are anticipating, and trying to capture, a major change of trend.
So without much on the docket over the next few days, and maybe into the Holiday week coming up, I'd like to point out an interesting and well-articulated piece I came across about the fundamental problem of valuation in today's market. If history is a guide, then the market is in for a long, tough slog over the next multi-year period. So please, read more about this important topic here.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained by 2 points to 11% full of negative sentiment.
SHORT-TERM: Eased off its decline phase into Neutral with a Negative bias. But overextended and ripe to head into a short-term advance phase.
MID-TERM: Progressed 11 points to 49% on the decline side but with Confidence regressing toward Neutral to a Bearish -1.
LONG-TERM: Regressed a point on Wednesday to 19% on the decline side with Confidence regressing to a Neutral 0.
BOTTOM LINE: The mid-term decline phase has now traveled just about half way. For a variety of reasons the market is ripe for a short-term advance. If the SPX can't break over 1048 then we'll expect the short-term advance to roll over quickly and for the mid-term decline to continue. If the short-term advance is able to kick the SPX up and over 1048 then we'll look for a new mid-term advance phase on the dashboard and for higher targets (1054, 1061, 1069). We'll watch the Confidence numbers as well. If Confidence on the mid-term gauge gets rebuffed at ZERO and fails to go green that will be bearish. If it crosses the ZERO line that will be bullish.
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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