The SPX crossed the 1600 level this week on a strong up. The market is now traversing
the threshold where value is left behind and momentum becomes paramount. I figure this
is so because with around $100 per share earning power, the SPX starts to get fully valued
up around the 1650 -1700 area (The 5/3 close was 1614). I will back away from this
view if business activity picks up not just in the US but globally because that development
would finally add a solid boost to earning power.
As I now see it, the cyclical bull market is in the final up - move of its second wave up
from the early 2009 low. I mark the second wave as commencing over Half 2, 2011.
This leaves open the idea that the market could experience another wave up out in time.
Such could well eventuate given the economic slack still extant in the system and the
powerful monetary fundamentals in place.
For now, I see the SPX as quite overbought on an intermediate term basis. Note the
large premium it is carrying over the 200 day m/a. SPX vs. 200 day Oscillator
Viewed in the context of the past 25+ years, the odds are only about 1 in 4 that investors
will see the SPX significantly higher over the next six months. A 10% premium for
the SPX to its 200 day or 40 wk. m/a is a tough hurdle to surmount.
The SPX also shows as overbought on RSI and MACD. Included on the weekly chart
for this edition is the full 14 week stochastic measure. Note that intermediate term
sell offs tend to be confirmed when the full stochastic breaks 80 on the way down and
note too, that the stochastic can remain overbought in positive territory for weeks at a time.
- Peter Richardson
- 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 !!!