Exposing Ideas to the Envelope of Serendipity

Contact moo at: bluechipbulldog@gmail.com

Monday, October 12, 2009

Earnings, and Opex, and Bulls, Oh My!

With the markets off and running on this Columbus Day trading session, it's time to once again review the "big picture" and take a look at where we may be headed. The market and stock action has continued to defy reason and the long-held expectations of many a bear, with commodities breaking out, earnings starting to trickle in better than estimates, and the dollar still firmly entrenched in a downtrend. First up is a chart of the $SPX from 2007 to the present showing both the dominant inverse head & shoulders reversal and fibonacci retracements of the entire bear market plunge.

Shown next is a chart I've posted in the past illustrating the very long-term view (more or less since its inception) of the leading index.

As most here know, I've been bullish on precious metals and bearish on the dollar for some time now-- gold has only just broken out to new highs, and the dollar's chart suggests there may be considerable remaining downside over the near to intermediate-term. But the most compelling market indicator advancing the case of the bulls has also been the most intangible-- the market and stock action itself. Dips are being bought, bullish patterns abound, and a steadily increasing number of stocks are at or near all-time highs. For months traders have been anticipating a substantial correction, and time after time have been denied anything more than a shallow pullback. That alone is telling, with bearish patterns that have briefly formed having bullish resolutions, and the market all but screaming its intended direction all the way up off the lows.

One of the biggest challenges traders face is learning to detach from their emotions, and just as important, from their expectations based on economic assessments. Trading expectations should be based on a combination of market behavior and the charts, and little else. The rest is irrelevant for all but the longest-term investors-- and even then, the chart usually knows first and best. Eventually, a correction will materialize that will be more substantial and will undoubtedly convince those of a bearish bent that at long last the rally has ended and the bear is back. The 1120 area is a noble contender for the honor of a near-term "top," and I'll be monitoring the action very closely as we get near. At this point, however, it is looking increasingly as if it will prove to be another buying opportunity.  -- Brinkley
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