Destination Resolution

From a technical analysis perspective, the initial stock market reaction to today's dismal jobs data (on all levels, most notably the 0% wage growth) does little more than move equity markets away from the top end of their multi month trading range. In the process, it moves stocks closer to the more important issue: a resolution of the sideways action.

As the accompanying chart implies (click to enlarge) and the historical information provided by S&P's Sam Stovall suggest*, price and moving averages are likely to converge in the not too distant future (did someone say August 2nd?).

At present, the Mega Trend (use search function on top left for information re the Mega Trend) is bullish. The interplay between price and its moving averages are positive. However, as noted several times previously, market tops tend to be quite different than market bottoms. The sideways affair is almost always the precursor to the rollover phase (which is when the Mega Trend reverses and the bear market is confirmed) followed by the tumble and the OMG moment for far too many investors.

An accompanying set of market action circumstances almost always occurs when the resolution takes place: divergences.

Inter-market divergences** signal broad market weakness. Confirming action signals broad market strength. At present, most markets are moving in sync with the US large cap group and are or are close to confirming a prospective new high. That said, further sideways action or a premature upside breakout could produce a deteriorating condition between and among markets.

Destination Resolution

The resolution of the sideways action should signal the next major stage for equities: a resumption of the bull or the return of the bear. The fact that the timing of the current resolution will likely occur in August is eerie. For August is the month that precedes the historically poorest performing time of the year: the fall.

Funny how these things seem to work out.

*see blog posting below, "If Sam Is Right".
**Intra-market divergences also signal market weakness, just to a lesser extent.