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Is It Time To Worry? The Charts Say No

October 09, 2013 | About:
It's really getting ugly out there.

After Monday's 136 point decline on the DJIA, which just happened to be the eleventh losing session seen in the last thirteen for the venerable index, the popular press was ready to declare the corner Broad and Wall a disaster area.

Although the Dow is by far the worst performing index (the corrective phase has knocked off 740 points or 4.73 percent since the September 18 high) it appears that the media is attempting to dredge up the extreme emotions that surrounded the 2011 debt/budget fight.

Below is a list of headlines seen on Monday after the closing bell on sites such as MarketWatch and CNBC:

  • "Social Security now at risk if debt ceiling isn't raised"
  • "One month shutdown may trigger 20%-30% correction"
  • "Fear gauge jumps"
  • "S&P ends at 4 week low"
  • "Dow below 15,000"
  • "Debt ceiling flashback: Remember how bad 2011 was?"
  • "China warns US 'clock is ticking'"
To be fair, none of the headlines were overly inflammatory. None suggested that the sky is indeed falling this time around. And after actually reading the articles, it is safe to say that most were fairly accurate.

However, to the average investor, someone who doesn't look at the correlations of market indices, the internal indicators, or the important technical levels, those headlines could very easily create some angst.

And perhaps that is the point. More than a handful of politicians, including the President of the United States, has gone on record suggesting that there is too much complacency in the markets right now. The thinking is that if stocks were in panic mode, Congress might start to feel some heat.

But with the so-called deadline (and it does appear that term is used loosely these days) still more than nine days away and the stock market just hanging around, the concern is that the politicians still have plenty of time to push the envelope on their game of political brinkmanship.

Where Everyone Stands

Let's break it down.

The President cancelled a trip to Asia and called everyone to his office to announce that he was not going to negotiate this matter. The Tea Party Republicans are not going to do anything unless/until "ObamaCare" is repealed or defunded.

The Democrats believe they are #winning and thus have no reason to deviate from the current game plan. And the end result is that nothing, absolutely nothing, is happening.

Stocks/Bonds Not Worrying (Yet?)

Each day that the impasse continues creates more doubt that a deal won't get done. Each passing day causes traders to fear the worst. And each passing day causes just about everyone in the country to fret about the politicians doing the unthinkable: defaulting on U.S. Government debt.

While the press continues to sport emotional headlines on the subject intended to evoke a response (well, actually the goal is to get you to read the article and maybe click on an advertisement or two), the markets have actually held up pretty darn well.

As was mentioned at the outset, the DJIA is the worst performer of the major indices. But take a look at the chart below. Is this the picture of panic? Doesn't the current selloff look orderly? Is there any technical reason to throw up one's arms run for the hills?

DJIA Daily



Now take a gander at a chart of the S&P 500. Sure, the last couple weeks haven't been great. And yes, the index did fail to hold above the old highs. However, note the thin blue line drawn onto the chat which represents the uptrend that has been intact since June (and yes, that could be extended back to March if one so desired). The point is that despite all the doom and gloom out there in the press, the index most often associated with the overall stock market is still in an uptrend.

S&P 500 Daily



Next up is the NASDAQ, also known as the "technology-ladened" stock market index. If the first question that comes to mind is whether or not this chart covers the same time period the charts of the DJIA and S&P 500 shown above, you have earned a gold star. The bottom line here is that there is no panic and no consternation evident. Heck, there isn't even a pullback to be found on the chart. As such, it is safe to say that there does not appear to be much fear in four-letter-land at this stage.

NASDAQ Daily



Ditto for the chart of the Russell 2000. While the index is struggling a bit with the uber-short moving averages plotted on this chart, the price of the index is still above the August highs, and the 18-day moving average (the teal line) is still moving up. Thus, by definition, the trend of the Russell is still positive.

Russell 2000 (Smallcaps) Daily



A similar pattern can also be seen on the chart of the Midcap index as well as the yield of the 10-year Treasury note. The bottom line is this: While the press and certain politicians may be trying to stir up some fear, there doesn't seem to be any real panic in the markets at this point in time.

But then again, tomorrow is another day and the deadline clock is ticking.

Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Strategist at Heritage Capital Management. He focuses on stock market risk management, stock analysis, stock trading, market news and research. Click here to claim a free copy of Dave's Special Report on changes in the current market.

About the author:

Dave and Donald Moenning

Visit Dave and Donald Moenning's Website


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