Friday, January 4, 2008


We are approaching the Long Term Up Trendline from the infancy of this bull market.While the market can withstand a brief and shallow breech of the line it still remains rather worrisome at this point.

However, if you look at one of the Fear Indexes below the chart you will see that it is at or very near levels that indicate a low of some significance.

I know that I sound like a broken record here, but the market has its back up against the wall and needs some type of stabilization in prices to keep the secular bull market in force.

There is no question about how bearish the daily chart currently looks.Most of the signs point to lower prices, but also to a selling climax in the near future that should end what might be only the first leg of the decline.

The daily chart really does nothing to clear up the possible short term direction of stock prices, other than calling for an intra-day reversal from a sharp sell-off. As I said above, we are going through a very telling period here and the possible outcomes will be from one extreme to the other.

It is at times like these that we must pay very close attention to volume, price structure and sentiment.

Price Structure certainly does not look well especially with the breaking of the uptrend line off the recent lows.

Volume is rather anemic for a market that would be looking for a low of significance. Volume is saying that while a snap back rally of sorts is always a possibility, the final intermediate term low has yet to be put into place.

Sentiment is one of a handful that shows promise for higher stock prices. There remains quite a large amount of pessimism in the markets according to the sentiment surveys and the very stubborn Investors Intelligence Survey on the S&P 500 has moved all the way to a very bullish 37% Bulls which is a 4 year low. Although there is always more room for more bears to roam, but at least this number dictates that the longer term remains more bullish.

The chart below shows that the market is at a point of balance and probability dictates that the scales should tilt in favor of prices moving higher over the short term.

Once again, this pattern is a threshold pattern that needs the market to cease the most recent decline in order to stay valid. It is just one more pattern of many that continue to tell us that the market is at a make or break point over the intermediate term and perhaps the long term as well.

In a nut shell, it is evident that we have reached the crossroads on the vitality of the equity markets. It is now time for the market to prove itself as to its true internal condition and we will get this answer very shortly indeed.
It has been precisely these readings that have been our catalyst for remaining so lightly allocated to stocks. This week is going to be a very interesting one and I think a harbinger of things to come for the year, so lets monitor the action carefully.

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