Thursday, November 22, 2007

S&P has now broken the 65 WMA

The S&P has now broken through the 65 week moving average. This has contained all corrections so far in the cyclical bull market. Notice that -2.88% in the top right hand corner of the chart? The period from Friday's close to the Wed. close before Thanksgiving is historically one of the most bullish times of the year. Well this year we just got the second biggest decline during this period in the last 27 years. The only year that exceeded 07 was the period in 2000 as the market was rolling over into the first leg down of the secular bear market. I also see a lot of discussion leaning towards another rally to let the big money out at higher prices. Unfortunately I think investors are probably going to be disappointed in this hope. We already had that rally out of the summer bottom. I mentioned during this time in the dailies that Lowry's buying pressure was not increasing and that selling pressure was spiking as the market rallied. This is not what we should have been seeing as the market moved higher. In hindsight it seems pretty obvious that the smart money was unloading stock to the little guy all the way up. I also mentioned the extreme ROBO (retail only, buy to open) levels of call buying and the extreme ratio of volume on the Nasdaq compared to the S&P. Both of these were signs of extreme speculation by the little guy at the same time the big money was jumping ship. At the present time the Nasdaq volume is still way to high. The smart money and media are now in an all out campaign to convince the retail investor that tech stocks are the place to be as protection against subprime fallout. Low and behold the sheep are falling for it all over again. They haven't learned a damn thing since 2000. First off this recession isn't being caused by subprime problems. Granted it's not helping matters. It's being caused by inflation. The same thing that was the Achilles heel of the 70's markets. We are currently in the exact same investing climate as the 70's and the Fed is trying to use the exact same methods to solve the problems. Namely printing money. Predictably we are now getting the same results. Spiking energy costs are the noose around the global economies necks not subprime loans. Tech is not going to be any protection against a contracting economy. As a matter of fact it will most likely be the worst area to be in. Everyone should read the quote on the home page by Edwin Lefevre and decide if they wish to avoid a similar fate. By the way he is talking about the 29-32 bear market.

BTW If you are reading this on Thur. then you are obviously a fanatic about the markets. Get out of here and go enjoy Thankgiving with your family :)