Tuesday, July 14, 2009

More Bear Signals

I've been pointing out some danger signs for the market since mid-June and feeling a little lonely amid all the green shoots and end of recession signs. But I find I'm not the only one reading danger in the stock market. I've pointed to:

1. The 140 EMA being a big bear/bull barrier normally broken energetically after the bear is over, which is not being done now

2. The RSI of the % stocks above the 50 dma chart signaling big declines when the market is trading below the 140.

3. The post recession/debt trend suggesting our present debt load may cause stock market problems well after the end of the recession.

Add these signs:

4. VectorVest has been calling the major turns of the market with amazing consistency, and, after issuing a market up signal on March 26, just changed that to a market down on July 10. They don't issue confirmed market direction changes very often, but when they do, they are usually right.

5. The Yen, which nearly always moves inversely to the stock market's major moves, is doing a base break-out move to the upside. Check FXY

6. Lowry Research is known for finding that 90-90 days (days when a move is with 90% or more of the volume on that side of the trade) accurately announce major market directions. We've had some of those lately on down days, but they rely heavily on their proprietary demand/supply modeling of trading, and they say the recent rally is without strong hands and not indicative of a bear ending move. A CNBC interview on their bull/bear view with their president by Bob Pasani suggests more bear market.

So the market is going to have to bowl over a bunch of reliable signals to make its next major move up, which it may well do. My view is that the market is at a major turn point, and hasn't made its direction out of the intersection known yet. There are good arguments for the consolidation to break to the upside, not the least of which is the leadership issue. The groups that have been leading the broad market both down and up since mid '07, consumer discretionary and tech, are technically much healthier than the S&P. The buy volume is bullish, and these two groups look to be successfully testing the crossed 140 as support in the consolidation. As long as this follow-the-leader pattern stays intact, you'd have to favor a north turn out of the broad market's funk. Its a tug-of-war. But the driver seems to have the front wheels turned south. We shall see.

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