Thursday, May 31, 2007

Technical Thursdays: Deceleration

It isn’t just the economy that has decelerated, the market’s momentum has as well.

As the updated and longer-term four-year chart to your left shows*, yesterday’s all-time highs were not accompanied by confirming momentum. In fact, at no time over the past four years has the deceleration in momentum been this pronounced.

Investment Strategy Implications

Needless to say, nothing is for certain. Markets can reaccelerate, with momentum reemerging taking prices to higher highs. However, the pattern of decelerating momentum PLUS a negatively tilted MACD has been fairly consistent in forecasting market stagnation at best with corrections being the most common outcome. Both decelerating momentum conditions must exist, however. At present, they do.

Of course, then there is always “this time is different”.

*See May 24 entry below for a more clear, shorter-term chart.

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