Last week when I was putting the finishing touches on my column entitled "Charts Show Speed Bump Ahead for Stocks" I added a little phase "which may have happened today" just before publication. The column is written before lunch but posts the the website shortly after the close so there are times the market screws me good. This time, I acknowledged the potential key reversal but did not say it was a definite.
My editor send me an email notifying me of the reversal (I already knew). But more important, everyone with any sort of technical analysis training saw that the market gapped up to a new record high but closed below the previous day's low. It is, or should I say was, a classic signal for the end of a rally. The final blow off on some sort of news where everyone finally agreed that stocks would never be lower again.
OK, a little exaggeration but you get the point. I thought to myself, "this is too obvious."
Everyone saw it. Everyone wrote about it. Everyone suddenly got a little scared. After all, sentiment indicators were screaming "sell" with their extreme bullish readings.
The next few days saw no real change. Then there was Memorial Day and when the US returned to work it was to a roaring gap up speedball of a rally on Asia and consumer sentiment. They're baaack!!! Wasn't that from Poltergeist? For you folks on Long Island, it could also be the Great Neck Nisan pitch guy.
Up, up and away, uh wait a minute. The Dow was up 200 plus and then closed up 106. Looks good on the evening news but we technicians knew better. That was a fairly strong give-back and it avoided negating the key reversal.
But bonds tanked! So did utes and mREITS. OK, the great rotation was finally here. Pundits all over the place said money was fleeing bonds and heading to stocks. Whoopee!
And then Wednesday arrived and stocks continued lower. In the premarket, they had given back the rest of Tuesday morning's gains - and bonds stayed low. That's not rotation unless you consider a rotation from assets to cash and not necessarily the greenback. Could it be into gold?
The point of all of this is that the key reversal was too obvious and the bears got punished Tuesday morning. But the Tuesday rally was painted with the roaring 20's boom brush and it set up the bulls to get punished. Ha ha (it's from the Simpsons).
Now the market can decide what it wants to do now that everyone has been humbled.