Thursday, September 15, 2011

Nothing To Hang Your Bullish Hat On

Following on yesterday's market intelligence (what I believe quality technical analysis actually is) posting, a longer term view of the market reveals the erosion in strength that took place this past spring when the market made new highs. The accompanying chart illustrates this quite clearly: non confirmation from all three price momentum related indicators. This helped set the stage for the subsequent and current decline.

To be clear, as noted on numerous prior occasions the absence of external divergences (use search function for prior blog postings) + the modest (not over) valuation levels for stocks + the manner in which the bear got started (from bull to bear rapidly and not in rollover fashion) = a delayed recognition by yours truly to the current bear market conclusion. As Lord Keynes once said, "when circumstances change, I change my views. What do you do Sir?”

Going forward, a look back at the chart shows no signs of strength from MACD. This is perhaps the most reliable of the three indicators in confirming market direction. As is plainly shown, the crossover to the downside is solidly in place with no positive (bullish) crossover in the offing. Until that occurs (and it will, eventually), investors are advised to assume that the current rally is highly suspect.

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