A look at the news…

I ran across a couple articles in the news this week and thought I’d pass them on. Then finish with a quick market outlook for this week.

In the, “I have some good news…and some bad news…” category, this is from Seeking Alpha,

Strategists See Biggest S&P 500 Gain Since ’98
Wall Street strategists say the Standard & Poor’s 500 Index, after falling within 1 percent of a
bear market this week, will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.

The benchmark index for U.S. stocks will climb 14 percent from yesterday to end 2011 at 1,300,according to the average estimate of 12 strategists surveyed by Bloomberg. The last time they were this bullish in October was 2008, when the group predicted a 27 percent gain and the index lost 18 percent.

So analysts just cut the crap out of projected third and fourth quarter earnings, but still predict a huge rally. Wow, and you wonder why people support the “Occupy Wall Street” rallies?

On a lighter note, there was this from MarketWatch: “Why Geezers Give the Best Investment Advice” In the article they site another article entitled “What is the Age of Reason?” that concludes that “…middle-aged people make fewer mistakes with finances than those that are younger or older. The research even pegged the optimal point in life for handling money-related decisions: 53…so the next time you talk with a financial advisor …instead of asking about investment performance, you might want to ask, ‘How old are you?’” Interesting to note that of the four authors, the oldest was forty.

Must say, although I’m a bit offended at the “geezers” reference I couldn’t agree more with the study’s findings. (note: I was born in 1957)

What to Expect from The Week Ahead
Looking at a chart of SPY (the S&P 500 Index ETF), there are three things to take note. First, the fairly horizontal yellow line is the 200 day moving average. Very simply we are still in a secular, or long term bear market until the market crosses back above this line. History shows that it is prudent to be careful while the market is trading under the 200SMA. The two horizontal lines show the trading range the market has been in since this spring. While SPY broke through the bottom line (support) for a day it did finish the week back within the trading range. However, the yellow arrow shows where the rally last failed to rise up to prior resistance (the upper line) and headed downward again. The last set of parallel lines slope downward and may indicate the start of a new downward movement.


Looking ahead for the week, what we don’t want to see is SPY dropping below the horizontal support line –around 112 for SPY or 1120 for the S&P 500. Breaking below 107 would be a likely confirmation of the new downtrend. Ideally we rally a little on the week and head back up to the 122.50 range, and at least confirm the trading range. Earnings season kicks off on Monday. The Kansas City Fed also releases its financial stress index for September, (more on that after the release).

Bottom line? Defense still rules, until the market rallies above the 1225 level on the S&P 500.

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bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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