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The MARKET story of 2008 - Back to the long term trendline off the 1982 lows.
Friday’s McClellan Oscillator Posts Highest Ever Overbought Reading!*
The chartists / market technician’s dictum of “reversion to the mean” is once again validated. Decades of market gains, savings, fortunes and careers lost, families disrupted beyond deliverance; the tech bubble / the Dot-com’s / nearly all the mega-move off the spike from the technology led December 1994 acceleration et al erased. And now we gaze back into the nothingness of the back-to-back blown bubbles of 1999/2000 & 2007/2008. Groan, what’s left but distressing and disconcerting reflections about what it once was. These are now but stories for the grand children. Yes - 2008 (ah la 1929) was quite a year. However, secure in the knowledge (pray God) from such pounded smithereens new growth will spring. Or, (shudder) are there in the mist of the tangle of the sorcerers entrails lower lows lying in wait to experience and tremble over?
Certainly the graphic representations of the Market herald more painful machinations and labors due as we trudge to the right side of the charts, but the lows or near lows seem in to me in place. Indeed, Santa arrived a tad late but within the bounds of schedule. Interestingly, in the face of the worst manufacturing report** to hit the market in decades the market took wings.
Friday big short-covering acceleration on declining volume produced significant technical improvement. While well into the measures of being highly overbought and colored by ebbing fear the backdraft off Santa’s sleigh kept pre new-year momentum going as the market broke through significant price / trendline and TICK resistance levels. On Friday the S&P 500 (SPX) closed at 931.90 up 59 points or 6.7% for the week.
So - while we finally show some real resolution in the charts we are about as maximum ultra-short-term and short-term overbought as it’s possible to get. Yet measures of longer term oversoldness continue at near record levels. The number of NYSE stocks below their key 200-day moving average is now 7%; just recently it was an historic low of 2%.
Therefore…with a positive chart backdrop of a working reverse head and shoulders I’d project back-and-fill price action burning off some of the overboughtness. I love the chart but the overbought aspects short term are reading “too hot” and a big negative - short term. Longer term, I think the lows are in, but right side of the charts need basing and. …time. To what degree a (looming) flood of short covering could fire an incendiary momentum acceleration in the face of the huge overbought does remains a possibility as increasing pain will continue to twist the shorts. Also, another positive; coloring this thesis is that there is trading void (free running room) to the next major resistance level at (SPX) 1000.
Of note: a rare and super high TICK occurred at the close on Friday of plus 1426 demonstrating intense ultra short term overboughtness.
Support is now just below (SPX) 920. Support / previous resistance of the key 50-day moving average currently is at (SPX) 886. Support at 860 looks good too.
The declining 200-day moving average is still way up there at (SPX) 1182.
** The Institute for Supply Management's factory gauge fell to a 28-year low as the recession continued to deepen and spread globally. The ISM’s 32.4 number has been exceeded in only three previous occurrences; i.e. the recessions of 1948 /1949, 1973 / 1975 and 1980 / 1981.
Also noteworthy in today’s news: Copper and zinc futures surged limit-up in Shanghai today on speculation index funds will buy more industrial metals this month to reflect annual re-weightings in their benchmarks.
The Treasury 10-Year notes yield zoomed 19 ticks to 2.41 %.
- * Friday’s McClellan Oscillator (favorite overbought / oversold indictor), was an all-time high overbought read of plus 344. The prior posts were also well into the overbought at plus 278 and 184.
- The CBOE Total Exchange Volume Put / Call Ratio on Friday was 0.96. Thursday’s was 0.81.
- Friday’s (VIX) [most well known fear index] had a low interday tick of 36 88 and closed at for the first time since XXX at 39.19.
The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Since its introduction in 1993 the (VIX) has been considered by many to be the world's premier barometer of investor sentiment and market volatility.
The (VIX) measures the cost of using options as insurance against S&P 500 declines.
Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Dr.Faessel@onthemar.com
Email Request for “Best Ideas for 2009”: Dr.Faessel@onthemar.com
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