Tuesday August 30, 2011
We have consistently maintained that one is far better off evaluating the market on what the majority of its component stocks are doing. Most analysts only focus on the volume weighted indices themselves. This skews what is happening in favor of the big capitalization stocks. Here is a case in point.
The main panel displays the percent of stocks over their 50 day moving average in the S & P. The rally began right at the low August 8-10, the bottom panel shows the actual index of price.
We noted that emerging markets world wide peaked last November, and indeed, this indicator topped last October. As the SPXA50R made consistent lower highs, we knew a collapse had to be coming, but when? At bottom the SPX stubbornly held up in the face of obvious declining internals.
The key was that the indicator SPXXA50R rose above the 200 day moving average red line, on each rebound, until late July early August, see pink arrow. Notice how it went for support last December bouncing off the 200 day MA to finally failing (pink arrow) right at that line. Then the party ended and the market rapidly collapsed in two -three weeks.
That red 200 MA is now serious resistance. An approach of that line along with a collapse in the VIX to under 20 and a fall in TLT to the mid 90s will be a signal the party is ending. I'd give the rally about three weeks, Next option expiration is Sept 16 and......
Socionomics
We have been preparing you for an upsurge in negative social mood. Well here it comes.
Stephen Lerner plans a
Day of Rage, targeting J P Morgan.
You can come to your own conclusions about the group's intent by the poster at left and by reading the linked article. But rage is o the rise, just what one would expect as the bear market gets underway again.
The date is September 17, a Saturday but should correspond to a market that will have been rising since August 10. It is dangerous to fixate on targets, we will rather use the metrics cited above, VIX, TLT, Percent above MA and resistance.
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