If you read this blog with some regularity, you probably know that Mondays are reserved for a macro-market technical view, while later in the week is reserved for sector or stock analysis. For this week’s macro view, I’d like to present a few reasons why I feel the market may be ready for an oversold rally. Interestingly, I wrote this blog on Friday for posting today, and I woke up to higher futures on the S&P today. I was also on BNN on Friday covering a few of these reasons, but the full list is presented below:
- Technical support. Technical support for the TSX lies right around current levels for the TSX (about 11,800), and just below current levels for the S&P 500 (1300 or so). I’ve marked support on the TSX and S&P 500 charts.
- Momentum oversold. 14 day RSI is oversold for the S&P 500, the TSX 300 and the NAZ – all of which saw sub-30 levels of this indicator last week. Further, the percentage of stocks trading above their 50 day MA’s has fallen to 20%. Anywhere at or under 20% can be considered oversold.
- Sentiment oversold. Rydex funds, which sells leveraged bull and bear mutual funds in the US, tracks its ratio of bull vs. bear fund assets. A “normal” market tends to show about 3.5 times the assets in their bull funds vs. their bear funds. In September, that ratio hit 4.5 times bull/bear, which can be considered overbought (investors were “too” bullish). Currently the ratio stands at about 1.5 bull/bear funds. The closer to 1:1 bull/bears, the more likely investors are becoming “too” bearish–a contrarian buy signal.
- 200 day MA break. As mentioned in last weeks blog work done by www.sentimentrader.com shows us that the break of the 200 day MA by the S&P 500, after a multi-year high such as we had in September, is actually a bullish sign–as opposed to the popular view of a bearish indication for future market direction.
- Fiscal cliff. Again, as mentioned in last weeks blog, any event of known consequences is likely to become a non-event. Like Y2K fears and so many others, the so-called fiscal cliff is likely to become just another forgotten moment in the markets long history of over reaction.
Please be sure to share your thoughts regarding this or other posts. I read all comments that are posted, and try to respond to them as well if requested! Also, I’m always interested in hearing about sectors or charts that interest you for inspiration of future topics.
9 Comments
Hi Keith,
Another indicator to support a short term market rally is that we bounced off the 61.8% retracement on the SP500 from the September high.
Jordan
Keith: Enjoy listening to your opinion, partly because we are on the same page but that becomes a problem at the same time. We seek out data/opinions that we agree with and so the purpose of my comments is to ask you to list the reasons that something will not happen as well as the reasons it will happen. Too late for this rally, or maybe not.
Thats a very good point you bring up. thanks–I will try & ad contrasting views (i.e. “what could go wrong”) to my technical viewpoints. I do usually try to qualify my views–ie I will mention conditions that must be met in order for my viewpoint to come through. But I’ll do some thinking on your sugestion as to how I might paint a more complete picture. Thanks for the feedback.
Oh, and BTW–whenever we seek out a viewpoint to back our own, it is called “confirmation bias” – this is common with politically polarized individuals, religious fundamentalist types and, last but not least, coffee freaks (see my Starbucks/Timmy’s post). I’ll admit it– I’m an unbending coffee fundamentalist if there ever was one!
Hi Keith
Would like to get your technical analysis on HNL.TO…seems to be liked my many portfolio managers as of late.
It broke out back in early August with volume but has recently fallen back to this break out line around $6.20
My questions is, how can you tell if this recent share price drop will just be a test of the resistance line before going higher, or if this recent share price drop is a break down which will take the price lower.
Joe
Hi Joe
I normally prefer not to answer questions on individual stocks on this blog, as everyone has stocks they want analysed and it would get too labor intensive. You can always email them or phone them in for my next BNN MarketCall Tonight show, which is Friday Dec. 7th. Go to the BNN website to participate in that venue.
anyhow–just as a quick look–the stock looks to have pulled back to a long termed trendline. A break below $6 (which is a way off) would be bearish.
Thanks Keith
I will be sure to catch your next BNN appearance…I own your two books Smart bounce and Sideways and look forward to your next release.
Joe
Hi Kieth,
I just wanted to get your updated view on GLD/SLV. They seem to struggling to get through the 50ma on the daily charts.
Thank you,
Parm
I wouldnt panic yet.