Archive for August, 2011

Market in UPTREND, August 24th

Yesterday’s strong market action turned the model around and we are therefore as of today in a new uptrend.

The correction we have seen in the market over the last few weeks has the third-steepest descent since at least 1970, only Black Monday in 1987 and the October 2008 were worse. Only time will show if this was a correction like in 1987 or if we are heading into another bear like the most recent between October 2007 and March 2009.

There are several indications that point to this being the start of another bear market:

  • The Philadelphia Fed State Coincident Index is dropping like a stone. From 90 in April down to 32 in the latest report. Every single time the indicator has fallen like this over the last 30 years we have gone into a recession. So it has correctly “anticipated” five of the last five recessions.
  • The consumer confidence is at 54.9. This is lower than anytime during the Financial Crisis, and the lowest it has been since May 1980.
  • Strong volume on a sell-off and weakening volume on a rebound make for the opposite of what bulls want to see.
  • S&P 500 is down more than 20% measuring intraday low vs. high over the last few months.
  • The 200DMA is sloping downwards.
  • The 50DMA has crossed below the 200DMA.
  • The bigger problem in today’s economy are credit related and currently the bank index, DKX, is leading the market lower.

If this correction turns out to be the start of a bear market, then the recent action is historically typical. In the past four bear markets, the first aggressive swing down was followed by a rebound. The indexes erased anywhere from 20% to 58% of the initial loss before they made a fresh move down.

We might be in one of those rebounds now, so be careful not to jump straight bank into the market even if the model has turned to an uptrend. In a bear market the upturn signals does not as often as in bull markets, which we have had since March 2009, lead to sustained uptrends.

I believe that markets could be waiting for what Benny B has up his sleeves and hoping that his speech on Friday could reveal something positive for the stock market. If the Fed decides to launch a third round of quantitative easing it could be the fuel that will drive stock markets higher.

If you decide to enter the market now, look for those stocks that bounce the most in the shortest amount of time, these are most likely the ones that are going to be the leaders of the new advance. And pyramid into your positions. This is a high risk market to be invested in.


Follow this link if you would like to see the performance of the model.

I just recently posted the latest newsletter that can be found here. I would specifically recommend that you take a look at the following chart and follow how the indexes behave when they reach their respective resistance lines.

Newsletter #2, 2011: Last week was brutal, but what can we expect going forward?

The S&P 500 was down 7.2 % last week, which was the largest selloff in 32 months! This selloff has in a little over a week wiped out USD 2.0 trillion, almost the same amount as the combined size of QE1 and QE 2. This just shows how fast asset values can deteriorate in a stock market downtrend. In other words this was a big event.

I have not sent out a newsletter for many months now, the last one was on March 25th, but I feel that the performance of the market over the last few weeks calls for another one now. Before I get into what I will discuss today I want to remind you to pay close attention to the model I use to calculate the turning points in the market. The model does not perform that well in a choppy market like we have had for most of this year, but in a longer time frame, as the chart below indicates, it has performed pretty OK.

Performance of the model since its inception in May 2008. The line is BLUE those days that the model indicates that we are in an UPTREND and RED those days that it indicates that we are in a DOWNTREND.

S&P 500 daily closing prices 

I am covering the following topics in today’s newsletter:

  • The implications of the US credit downgrade and why the US should attack Switzerland
  • Still no sign of leadership from Washington
  • Official numbers say that unemployment is falling, but does that really matter?
  • Is this market correction the start of another bear market?

Read More…