Blue Skies Sunshine
BY MARTIN GOLDBERG, CMT | march 18, 2010
The market is going up on a daily basis. At an obligatory 5 to 7 point rise per day, with no corrections, the S&P 500 will be near an all time high in less than 60 trading days. From recent history, there is nothing in the body of knowledge of technical analysis that suggests otherwise. (With the possible exception of fairly tepid volume; but the lack of volume has not affected the market in recent weeks. So only a change of trend would make this observation relevant.)
Strategically, you should be long. But if you have waited for a pullback, it has not come. So you are left with the decision as to whether or not to buy into an overbought market. And the market keeps on getting more overbought every day.
Many markets are starting to tickle their long term support/resistance levels. So buying into these would be buying into important long term resistance as in the emerging markets ETF chart below.
Here you can see the importance of the $40/share level as an important support / resistance level. While it can be said to the precise $40/share level as resistance has been broken, this has yet to be proven as a decisive break. At the moment, EEM is trading at $41.69 and is a very recent market laggard as it struggles with this level.
Similarly, the Brazilian stock index sits on an important technical support/resistance area. In more recent times the index made a lower low, and now sits near what would be a lower high. Is this a “sell” signal? Selling would probably not be a good idea, because this market has been one that suddenly rewards lagging stocks at about the exact moment when they appear to be faltering.
Consider the semiconductors. There’s been a lot of excitement in the semiconductor stocks. Although they are in a decade long bear market, they enjoyed the rally off of the market bottom as much as most sectors. A continued move to a decisive higher high would result in the end of a secular bear market in this economically sensitive sector. Notice how much action has occurred in the semiconductor index at approximately its current level over the last ten years.
And the last few days has been kind to the once-lagging semiconductors. More than a 4% rise in two days. Not bad.
To perhaps give the inflationists some pause. The chart below depicts the ratio of gold compared to the S&P 500. As can be seen the trend toward gold’s underperformance to stocks is one that has lasted a traders eternity. (Almost one quarter). A similar relationship exists between stocks and gold mining stocks. While it is too early to say “ah-ha”, it is a trend worth watching in the near term.
A lot could be said for the inflation scenario if crude oil could break the $84/barrel level decisively. It’s threatening that level now. The near term level for the deflationists to crow would be a move below $70/barrel.
And inflationists can crow if silver can break its current intermediate term downtrend.
The market opened up down a bid with transportation index bell weather FedEx reporting a quarter that was worse than expected and dropping about 3% at the open. By the close of trading the market thought the FedEx quarter was just fine as FedEx was up over 3%.
The market finished little changed which should be viewed (under blue skies and sunshine) as relieving somewhat, the overbought condition with no price degradation.
Low market volume today is probably indicative of Wall Streeters greater interest in the NCAA opening round versus the market. Is this an indication of complacency? Volatility is hitting multi-year lows, while not yet reaching the lows seen at the last market top.
There was no specific market action today that is worthy of mention, with the exception of the transports which were up about 1% on the strength of FedEx.
Blue skies, sunshine.
Copyright © 2010 All rights reserved.