The doubters seem to be to the fore in Australia, this afternoon.
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Trader Update -data point 13 July 2010:
...in a broad based rally, the SPX 500 ticked higher after the index moved out of the June 25 Congestion *1068/*1084 and further upside is likely
...targets above the June 25 Peak *1084 features the Jun 23 High *1100 at a minimum; potential to reach out to the Jun 21 High *1131 towards the end of the week but
-the May 28 High *1107
-the June 4 High/June 21 Low *1108
levels will remind the bears strongly, they are loosing their grip in the market and above the June 21 High *1131, its 'Game Over' for the bears
...initial support: the *1058/*1068 zone
Long Term: http://i25.tinypic.com/6y38cg.jpg
Kind Regards
Trader Update -data point 14 July 2010:
...the SPX 500 down to intraday *1087 subject to mild profit taking but holding above June 25 *1084 break-out level so far; above *1084, taking out the June 23 *1100 is on the cards
...targets above the Jun 23 High *1100 feature the May 28 High *1107, the June 4 High *1108, the June 19 High *1119 but ultimately its the June 21 High *1131 that is 'Game Over' for the bears
...however, near term overbought conditions indicate risks of a substantial corrective down move are increasing above the *1100 level
...initial support: short term *1090 then the *1058/*1068 zone
Long Term: http://i26.tinypic.com/s68395.jpg
Kind Regards
sorry Belgarion, should read near term overbought
Kind Regards
Trader Update -data point 15 July 2010:
...the SPX 500 rejected to jump the *1100 barrier and profit taking took the index down to intraday *1081 below the June 25 *1084 break-out level so far
although the index appears to have stabilized at *1080 further slippage to test the July 8 *1058/*1068 zone is possible
...a successful defense of the support zone would motivate the market to start another leg up with the June 19 High *1119 and potentially, the June 21 High *1131 as targets
Long Term: http://i26.tinypic.com/s68395.jpg
Kind Regards
...the SPX 500 is at a crossroad and at this stage can go either way
-75% of the index components already in an up-trend
-the VIX sloping up but on not enough strength
-liquidity remains stuck halfway in the contraction zone
-institutions selling less but still not accumulating to give the market final direction
...this bull/bear fight remains undecided at present up to *1131, but a short term indication for further market direction would be to clear the *1100 barrier, otherwise the market is inclined to test the July 8 *1058/*1068 support zone
-position accordingly-
Kind Regards
Trader Update -data point 16 July 2010:
...the market did not even bother -to jump the *1100 barrier and stoned the SPX 500 back smack into the upper end of the July 8 *1058/*1068 zone to intraday *1069 so far
after todays action, the overbought condition on the 3-month daily trading set-up has started to ease but remains overextended
as a consequence, the curent set-back is expected to extend down to *1058 (possibly as far down as the *1050 psych barrier) before a more bullish bias will resume IF the support zone is successfully defended
...a successful defense of the support zone would motivate the market to start another leg up with the June 19 High *1119 and potentially, the June 21 High *1131 as targets
...look for a bullish trade above *1070 – target *1130 – stop *1047
Long Term: http://i26.tinypic.com/s68395.jpg
Kind Regards
Belg thinks this Hussman guy is an idiot but I thought this weeks newsletter was very good ... esp ifrom a FA man who believes that charts, ie tecnical traders, are what is currently holding the S&P at current levels ....before the inevitiable collapse
Misallocating Resources
John P. Hussman, Ph.D.
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Perhaps the best way to begin this week's comment is to note that in decades of market analysis, I can't remember a time that I've heard many analysts quoting some support or resistance level as being "critical" for the market Some are eyeing the 1040 "neckline" on the S&P 500 "head-and-shoulders" formation. Others are eyeing the downward trendline that connects the April and June peaks for the index. Still others point to the "death cross" between the 50-day and the 200-day moving average, near the 1100 level, as being crucial. Even Richard Russell - who deserves more respect than most - has put the full weight of his analysis, over the near term anyway, on whether or not the Dow Transportation average remains above the closing level of 3792.89. The object of discussion has increasingly turned to the implications of this particular chart formation or that, as if some magic number or another absolves investors from having to think about the big picture.
All of this suggests that this is a "rent, not own" market being driven by technical traders who uniformly and somewhat predictably pile on to the sell side or the buy side when particular levels are hit. Last week, we observed the obligatory rally to prior support, closed a "gap" in the S&P 500 chart from a couple of weeks ago, and kissed the 20-day moving average. Based on this sort of "critical level" chatter, a move above the 1100 level could trigger a powerful but short-lived burst of short-covering on the relief of the "death cross", while a move below 1040, and particularly a break in the Transports below 3792.89, would most probably cause all hell to break loose. Simply put, over the very short term, market fluctuations are likely to be driven by masses of technical traders, nearly all acting on precisely the same signals.
The key issue here is the sustainability of these moves. To the extent that an upside breakout is accompanied by a substantial relief in near-term economic concerns (e.g. a move in the ECRI Weekly Leading Index growth rate back to positive territory, or three to four weeks of plunging new claims for unemployment), one might anticipate a positive follow-through over the intermediate term. In contrast, a downside breakout accompanied by further deterioration in reliable economic indicators or poor corporate guidance would prompt a more sustained period of deterioration. Lacking such confirmation from "real" indicators of economic and corporate activity, the immediate response of breakouts or breakdowns is likely to be confined to a short burst of concerted selling or short-covering.
On a valuation basis, the S&P 500 remains about 40% above historical norms on the basis of normalized earnings. The disparity between our valuation assessment and the putative undervaluation being touted by Wall Street analysts is so great that a few remarks are in order. First, virtually every assessment that "stocks are cheap" here is based on the ratio of the S&P 500 to year-ahead operating earnings estimates, and often comes with a comparison of the resulting "earnings yield" with the depressed 10-year Treasury yield. What's fascinating about this is that this is the same basis on which analysts deemed stocks to be about 40% undervalued just prior to the 2007 top, following which the market plunged by more than half. There's a great deal of analysis regarding forward operating earnings that I published in 2007, but probably the most comprehensive piece was Long Term Evidence on the Fed Model and Forward Operating P/E Ratios from August 20, 2007.
To properly understand the price-to-forward operating earnings ratio, you have to recognize that operating earnings exclude a whole host of charges - what some observers correctly call "recurring non-recurring" charges. These include large and often quite regular losses that the companies deem, often on the thinnest basis, to be detached from their core business - even if the losses are directly related to their core business. Items like enormous asset writeoffs come to mind. Moreover, the "forward" means that these are year-ahead analyst estimates, which are typically substantially higher than trailing 12-month reported earnings.
Think of it this way. Suppose your poodle is 40% overweight. Someone sells you a scale where every pound shown on the dial represents 1.4 pounds of actual weight. Guess what? Your poodle will step on that scale, and the dial will pleasantly report that your dog is at its ideal weight. That may be comforting if you don't like to face reality, but the truth is, you've still got one sick puppy.
When you hear analysts say that the historical average P/E ratio is about 15, you have to recognize that this is the normal P/E based on trailing 12-month earnings after subtracting all writeoffs and other charges. Forward operating earnings are invariably much higher, and it turns out that the comparable historical norm, as I discuss in that 2007 piece, is only about 12. If you exclude the late 1990's bubble valuations, you get a historical norm closer to 11.5. The 1982 and 1974 market lows occurred at about 6 times estimated forward operating earnings.
A final observation is crucial. Current forward operating earnings estimates assume profit margins for the S&P 500 companies that are nearly 50% above their long-term historical norms. While we did observe such profit margins for a brief shining moment in 2007, profit margins are extraordinarily cyclical. Investors will walk themselves over a cliff if they price stocks as if profit margins, going forward, will be dramatically and sustainably higher than U.S. companies achieved in all of market history.
From hussmanfunds.com
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16th July Update
Today's sudden drop is a typical completed pullback feature from a broken-out completed H&S formation..... and also... an end to a lower high rally ....the sucker type, a typical feature of a bear market. I think it is appropriate to highlight part of my previous post in red.
Therefore warning bells should be ringing loud and clear..
I think its beyond doubt now that the S&P500 is a bear market ..
Wisdom says ..bears do disappoint, bears can't count, bears have irrational and nasty tempers and capitulation events can occur before the bear trend ends. Statistics show (Bulkowski) that following the ending of an identified broken-out H&S formation pull back a sudden drop takes place....followed by an extremely strong bounce which can end the bear trend. Usually the sudden drop is severe and should be avoided.
Refer to my 30th June 2010 post #522 and chart for those details.
http://i458.photobucket.com/albums/q...29062010-2.png