About Me

Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Monday, February 01, 2010

Stock Market -- Technical

I gave the charts a thorough review over the weekend. Back on Sep.
18, '09 when I started turning cautious on the market, the SP 500
went out at 1068. It closed at 1074 this past Friday. So, despite a
measure of intervening strength, the market staged a round trip
over the said time frame. Over this interval, the market changed
complexion. A lengthy period of winnowing volatility ended in mid-
Jan. when a "fake" upside breakout ended and a correction began.
That change in volatility plus the existence of three distinct uplegs
in price off the 3/09 low strongly suggests to me that the first
major leg of this cyclical bull market has ended.

The recent price correction has eliminated overbought conditions
ranging out to 40 weeks and did leave the market with a tradable
oversold for short term players. However, to count on the
development of a significant new upleg off the 1/29 low appears to
me to be an against-the-house bet. History suggests that when the
stock market comes off the kind of massive overbought condition
we saw develop in latter 2009, it tends to have a relatively sterile
period until the bulls can once again regain command. Unfortunately,
there is no ready time measure to suggest when another upleg might
get started, but it rarely takes less than a good several months. I
have also observed that when the market does come off a giant
overbought, it more often than not corrects / consolidates until it
tests its 40 wk m/a (The SP 500 weekly chart linked to below shows
that the large gulf between the index and its 40 wk m/a is closing
fairly quickly).

It does need to be said that when the stock market corrects after a
period of consolidation as we have recently seen, one has to concede
that stocks could be transitioning to a more vulnerable period. That
test may come over the next two weeks.

Weekly chart.

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