Reply #1: Market WrapUp [View All]

[ozymandius]

A Welcome (if only temporary) Return to Stability
BY FRANK BARBERA, CMT

While it is still “too soon to tell” whether or not a long term low will be established in the stock market in the 750 to 800 zone for the S&P, one thing is certain, prices have finally begun to stabilize. At first blush this may sound silly, as we all know the stock market has enjoyed a powerful rally over the last few days. However, Step #1 in arresting a bear market is to STOP going down. Put another way, you need these bullish interludes, these powerful bear rallies, to help begin the process of stabilization. And believe me, stabilizing the capital markets after the kind of pasting they have been through in recent weeks will be a “process” with many powerful rallies and declines.

In my last GST newsletter that went out the morning of October 28th, with the S&P 500 sitting at 859.95, we told subscribers that the S&P was about to embark on a powerful rally back up across the trading range to above 1,000 in the short term. Flash forward five days later and the S&P has now moved above 1,000 and still appears to have some additional strength ahead during the course of this week. At the same time, I also told subscribers that the US Dollar was ready to reverse and that process is also now underway, with the Dollar Index experiencing several of its largest down days in the last few decades over just the last few days.

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For the S&P, the 50 day average closed Monday at 1098.86, with the 200 day moving average at 1275.37. At present, the 50 day average is dropping 5.20 S&P index points per day, while the 200 day average is dropping approximately 1.50 S&P index points per day. At this rate, it will be at least mid December before the 50 day average is down into the mid 900 zone, and it will be May of next year before the 200 day average reaches the 1,000 mark. Put another way, we see no way that these two moving averages can re-cross one another to the upside before June 2009 at the earliest. As a result, readers should be prepared for a very see-saw market climate for some time to come, and again, that is the best case outcome, and it assumes a ‘recession’ not ‘depression’ scenario for the broad economy. Before getting truly bullish on the stock market, as in, here comes a new bull market bullish, a lot of water needs to flow under this particular bridge, and among the most important elements will be time. The market will need time in a base, time-spent draining downside momentum, and time to allow the price structure to rebuild a launch pad for a renewed and sustainable advance.

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