Regular readers know I have been leery of this rally for some time, for no other reason that after a stellar run like we have seen recently, markets usually need a breather. Sometimes its a period of going nowhere, sideways and or a trading range – what I call a “time consolidation” – and other times its a “price consolidation” where the market pulls back sharply.
So the big question for trader style investors or the tactical asset allocator “is the market stalling or consolidating”?
Friends at Global Marco Monitor were asking the same question overnight which I missed initially but picked up via Abnormal Returns this morning and even had the same charts that I have prepared below. But first here is what they had to say about the market:
Short-term the S&P500 is in a trading range of 1340-1378 and looks to be working off severe overbought conditions with a healthy consolidation. This seems to be the pattern of the 20+ percent move since October – a strong move up followed by a few weeks of range bound consolidation. The bears will seize on the longer term chart and warn the index can’t seem to break through last year’s high.
Nevertheless, the index remains in an uptrend; the market bounced nicely at 1340 support after a sharp sell-off last Tuesday; the declining VIX is confirming the move higher; Greece has now officially defaulted and the world has not come to an end; and global central banks are gushing with liquidity. Our sense, however, is the S&P500 needs to close above 1380 sometime soon before markets get too nervous about elevated oil prices and the China slowdown
I agree 100% and here is my chart which is strangely similar to the two in their piece – no wonder I love their blog 
The Aussie Dollar (AUDUSD) on the other hand is under a little more pressure, no doubt because it is directly related to the slowdown in China that people are now talking about:
Key support is, as I suggested last week, around the 1.0378/87 region with the 200 day moving average around 1.0407. But unless the lower bound is taken out the Aussie Dollar is just in a big old range consolidating.
My Double Bollinger Band strategy is nicely short still but last night’s low just above 1.0470ish is just the bottom end of the range. For now at least anyway as I think it is going to test the 200 day moving average.
So all up it remains a traders market. Can the rally reemerge? Of course but for the moment markets are consolidating. Equities with time the Aussie Dollar in price.
Have a good day
Gregory McKenna