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, July 05, 2010

Stock Market -- Technical

1) The market is moderately oversold on a price momentum basis
for the short term, and it is closing in on exhaustion of the sell-off.
NYSE breadth has held up better than has price momentum, and
the market is not oversold but is neutral on these measures. My
breadth indicators, when oversold, are more reliable than the
price momentum measures. The SP 500 closed out last week at
1023. Next support level is 1000.

2) My biggest technical concern during the nearly 13 month long
80% leg-up in the market off the 03/09 low was that the angle of
the trajectory was simply too steep and that at some point investors
would be faced with an extended consolidation / sell-off interval
before there could be another durable up-move. Much, but not all
of that risk, has been removed over the past couple of months.

3) For many years, I have used a price oscillator determined weekly
off the 40 wk m/a. Toward the end of 2009, that oscillator (the
premium / discount in price off the 40 wk m/a) reached extended
levels not seen since the bubble years of 1997 - 99. Now, the market
has swung to a discount steep enough to be consistent with a
developing bear market. The current reading is neutral between
whether a cyclical bear is in force or whether we face a steep price
correction in an ongoing cyclical bull (a kind of "economic slowdown
shock"). Since the volatility in the market (and in the economy) has
been so great over the past two years, I think it is simply premature
to call a cyclical bear, and I am remaining in the bull camp for now.

Strategy
As discussed last week, I am presently long the market. But, I
envision running a personal hedge fund primarily using options
to hedge my position in various ways until we see a diminution in
economic volatility which I freely concede might not occur until
another 12 months has gone bye the bye. (I have traded call and
put options since the mid-1970s. Such trading can be a vexing
and frustrating affair, particularly as regards order execution. I
enjoy it overall, but such trading is not for everyone. Practice first
for an extended period before you try for real.)

I have linked to a weekly chart for the SP 500 which suggests the
market may also be close to an exhaustion of the recent sell-off.
Chart.

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