Summary for Week Ending 22nd April 2006
For the past two weeks there have been a couple of newsworthy items but perhaps the biggest have been the report from the Fed ( which by the way really said nothing, but never let the truth get in the way of a bullish sentiment) and the price of Oil. Regarding the later, which is more real than the former, I am amazed how this escalation in the cost base for an industrialized nation can be swept under the carpet and ignored. Forget analysts reports etc etc, its all very simple. If a business is reliant upon fuel, at any stage of production or distribution then an increase in this cost will effect profitability. A secondary impact is the poor sod who has to fill his or her car to travel to the mall to buy what ever is being produced. If the cost of travel increases, the average household doesn't have the luxury of sacking workers, it simply has to tighten its own microeconomic fiscal policies and the first to go are luxury items. This leads to a lessening in demand which in turn feeds upon itself. and well... you should get the picture. A prolonged session of high Oil prices is bad. Its that simple. Enough of the soapbox let look at how the market is handling reality.
Last week...
For the past two weeks the market was shaping up to make a go at heading south and this scenario was working out quite nicely until Tuesday, when the market suddenly jumped on a report from the Fed and decided that it was bullish. In fact it was bullish enough for the market to go up almost 2% on the day which was the biggest 1 day move we have seen in a very long time. This push to a new high was followed by a new high again on Wednesday but without the previous days enthusiasm and we had it again on Thursday. Friday saw a bit of a rest but at least the market has yet to close above the previous high which is in itself a minor significance.
So what's happening ?
Looking at this weeks chart we can see that the market is resting just below the upper internal trendline and it appears to have hit some resistance here. I have removes all the previous forecast lines this week as they are no longer relevant and I'm waiting for the market itself to telegraph a punch or two because at the moment its has me dazzled. This rising compression had been going on since Oct Nov last year and is yet to resolve itself, although it has had ample opportunity to do so. Just when its looking bearish it rallies and as those rally's fail we get solid bearish signals but a failure to produce a trend. On a weekly chart however this is a different story as a weekly chart displays none of this annoying noise that we have been subject to for the last 6-12 months. Nothing much to do except wait and see if we get a roll on. Note that volume of the rally's has been strong.
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