Stock Market -- Seasonal & Technicals

Seasonal

Historically, the period that runs roughly from post-Labor
Day through the end of October is one of stock market
vulnerability. Knowledgeable market players know this all
too well. It is an edgy time when strategists can even
pressure themselves to look for negatives or to overemphasize
minor ones. In this way, they look good if the seasonals
hold to form. In a like manner, many investors and traders
tend to adopt a more critical or stand-offish attitude. To
boot, there are players out there who think the well respected
four year cycle low, "due" in 2006, has not played out yet.
Occasionally, the seasonal lore has weighed heavily enough
to create a self-fullfilling prophecy.

Technicals

The technical view as I see it is not at all so bleak and is
out of synch with the seasonal view. I have to affirm that
the market is mildly overbought short term on price level,
and moderately overbought based on my A/D oscillator. But,
these readings are not at all ominous. As I read the tea leaves,
the market is in an uptrend that can last into 12/06
reflecting a positive turnaround underway in key internal supply/
demand factors coupled with an uptick in my longer term
momentum measure. I see the SP500 eclipsing the 1326 interim
peak established in May and eventually moving up to challenge
trend resistance of 1350 - 1375 later in the year. I also
suspect that as the rally matures, there will be a strong
albeit temporary rotation back into the small and mid cap
groups.

This piece can serve as a technical companion to last week's
"Out Of Synch" post (8/30).