We will begin this blog with a quick overview of the broader market through the S&P 500 depository receipts (SPY). This is a great vehicle for analyzing the stock market as it represents and index of the 500 biggest issues in the US market.
Here is the Weekly Chart for the SPY:
Three things jump out at me when I look at this chart
1. The broader market flashed a 'sell' signal in early Nov. '07 when the 13 period exponential moving average (which is an excellent gauge for the short term trend of the market) crossed below the 30 period simple moving average (which is an excellent gauge for the medium term trend of the market).
2. The market has moved back into support near the 200 week simple moving average (also known as the 4 year business cycle moving average).
3. the market is now trading in the lower trading range of its current up trend channel.
Conclusions:
The market is still 'consolidating' its recent breakdown and therefore still contained in its current downtrend. That trend will change once a 'double bottom' is registered (in this case a close above $140 will confirm).
From a longer term perspective, the euphoria of the market has been cleaned out and we MAY be setting the stage for the next leg higher.
From a historical perspective, US presidential election years are typically flat for the first half then once the unknown has been priced into the market it does well into the end of the year. As well, many banks are reporting poor numbers due to the 'housing crissis' and the market cannot move forward without their participation. It will take at least a couple more quarters to get their balance sheets looking respectable again.......In other words, hurry up and do nothing!
Brian Beamish FMA, FCSI
