Inflection Point?

...If you will go to StockCharts.com website and take a look at their default chart, you will see that the market is precariously perched at the moment. Short term, it appears it could break either way. I lost faith in charting many moons ago. I am convinced that, if they were ever completely reliable, charts have become a tool for deep pocketed people with fast computers to paint pictures to suck the unwary in to the web. Time after time I have seen perfect technical analysis (TA) setups evaporate for no apparent reason.
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Look at where the markets are sitting right now, in between the 50 day and 200 day simple moving averages. That's of interest because those are two moving averages that are widely followed in the trading community. The 200 day average is often considered the bull/bear line, with those stocks above that mark being in bull markets, and vice versa. The 50 day average shows more current sentiment. Stocks that are in overall uptrends often see further buying in by their adherents whenever they come back to touch that 50 day line.
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Friday showed the Dow bumping its head on the 50 day line and then retreating. The bears can take hope in that, especially since there hasn't been a legitimate bullish accumulation day for the Dow in a month.
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But the bulls can take heart in the fact that the Dow found strong support at its 200 day moving average and bounced strongly up from there. Or did it? 8/16 was a particularly fascinating study of what I referred to as painting a picture for the masses. The Fed did a masterful job of painting that day and of giving out a strong message to friend and foe alike.
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The formation the Fed painted on 8/16 is sometimes known as a hammer. In candlestick charting, it is considered to be a particularly bullish formation. The hammer comes at the bottom of a downtrend. There is an intra-day selloff, a capitulation, then the bulls finally start fighting back and bring the closing pricing almost back to where the market opened. For it to be perfect, it should occur on heavier than normal volume and be followed through the next day by higher prices. The 8/16 and 8/17 action on StockCharts shows a picture perfect illustration.
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On 8/16 the Fed announced the .5% cut in the discount rate. They had already been injecting liquidity into the financial system. They also picked the perfect day to do this since it also turned out to be, not coincidentally, options expiration day. So with the 200 point gap up at the open, they effectively trapped market shorts out on an island and wiped out zillions of dollars worth of gains on short trades - a brutal, unfair, manipulative tactic since the options expiration date prices are based on the open. So not only did the Fed force huge upside trading volume, they even got panicky bears to help them as the bears were falling all over themselves trying to cover their trades. The message to the bears was, "Don't mess with us. We'll do whatever it takes to save the market." In the process, the Fed also painted a perfect hammer on the charts, on heavy volume, right at the all-important 200 day moving average. Impressive indeed.
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That was followed dutifully by another advance the next day and the bullish advance was resumed. The one fly in the ointment is that each day of advance occurred on lighter trading volume than the day before. So the bears, still licking their wounds from the beating the Fed gave them 8/16, still are unconvinced. And the bulls, though probably somewhat nervous, know that the powers that be are still stacking the deck in their favor. The Fed delivered a strong message that day to both sides.
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Ports: The NoTouch is up 6.2% year to date. A new OOP port (33% each OAKBX, OAKGX and PSAFX) is up 6.6%. Not spectacular in either case, but they are both doing their job. Neither port has had a losing year going back to 2000, so they have had the opportunity to perform in the bear market of 2000-2002 and the bull market since. They both have the tendency to outperform in bear markets and underperform in bull markets. They compare to the market averages of 7.2% for the Dow, 7.5% for the Nasdaq, and 3.9% for the S&P 500.
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The OOP Port, since January 2001, has never had a losing year, has returned an average of 14% annually, with 8% being its worst annual return. I suspect that the remainder of this year will provide its most stern testing, but to date it has provided sound results combined with the ability to allow one to sleep at night, and that's worth something.
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