Initial Comments, 29/01/2010

I don't usually do a blog on Friday because I spend so much time preparing my weekly reports - and the summaries are posted here late in the week-end. But I'm making an exception today because of the precarious position of the markets and what I think will happen. And I'll be brief.

Heavy selling today saw the XAO fall over two percent on the highest volume for over a month - 18/12/09.

The market finished at the second last major horizontal support level - the 4600 area - the late Nov 09 Low. Only one more major support level (about4500) before the abyss.

I'll be surprised if this wasn't a selling climax today. It could, of course, keep going lower. The market can do anything it likes.

The Down Volume today was the highest since this major rally began after the June/July 09 correction. (See second graph above). It should be remembered that total volume on the XAO was nowhere near the highest for this period. So - this looks very much like last gasp panic selling.

So - if we get further selling on higher volume that would take us down below the 4500 level.

I'll eat my panama hat if that happens in the next few days. (Of course, I wouldn't eat my panama hat - it is far to precious for me to do that. But you get the idea. :))

Cheers

Red

Relative Strength of Sectors. 28/1/2010

Here's a change of pace.

Above is a chart of relative strength of sectors. This is constructed using ratio charts of each sector or sub-sector and comparing how much in percentage terms they have changed in the past 50 Days. Par is represented by 100%.

The average (currently under 100%) means that the market as a whole is below the level it was at 50 Days Ago.

Using a top-down method of stock selection, it is best to invest in stocks from the strongest sectors.

The only Industry Sectors above 100% are: Telecommunications and Information Technology.

The Industry Sectors doing better than average are: Telecommunications, Information Technology, Financials and Materials.

Above are relative strength charts for each of those strong sectors.

Telecommunications is above 100, above its 200-Day MA. It is currently in a symmetrical triangle formation - so it would be best to wait for a break from that formation before investing in any stocks from this sector.

Information Technology, although above the 100% level, is below its 200-Day MA and has broken below its short-term uptrend line. Stand aside.

Financials, below 100%, below the 200-Day MA, and has broken below its short term uptrend line. Stand aside.

Materials, below 100%, below the 200-Day MA. Materials are interesting because, since the Bull Rally began early in 2009, every time it has dropped a little below the 100% level it has then bounced to provide a tradeable rally. XMJ has now dropped a little below the 100% level and appears to be in the process of bouncing. Watch carefully.

So - that little process gave us nothing actionable - but taking no action is a decision.

We will continue to watch these relative strength charts carefully.

Perhaps a contrarian approach would yield some results? If I looked at the weakest segments to see if any sectors were bouncing - would this yield some actionable results? I'll look at that tomorrow and report.

Until then - the market remains oversold - consolidation is occurring - we will be looking for a significant break upwards or a break below the supporting uptrend channel.

Cheers

Red

Initial Comments, 28/01/2010

Here's an updated chart of the XAO from yesterday. The market remains within the uptrending channel and is currently consolidating at the lows in a fashion similar to the October 09 low.

How the market breaks from this consolidation will probably determine short and medium term direction.

At this stage there is no way of knowing. We'll let the market show us the way.

50 Leaders 27/1/2010

Short term, the 50 Leaders are now clearly oversold with the percentage of stocks above the 10-Day Moving Average now registering just 4%. The percentage of the 50 Leaders below the 50-Day Moving Average could still drop further as it did in late-October/early-November. That seems a likely scenario.

The biggest worry about this chart is the percentage of the 50 Leaders below the 150-Day Moving Average. In itself it is not a worry - 62% - but it is now at 5-Month low and still dropping. This has the potential to be a trend changing move. If this graph drops below 50% then I think we can safely say we have a trend change.

Cheers

Red

INITIAL Comments, 27/01/2010

OK - Is this as bad as it gets? Maybe.

Looking at the top chart, the All Ordinaries (XAO) appears to be in a gently sloping up trending channel. The chart is now testing the lower boundary of the channel.

The range of this drop is similar to the range of the drop back in October.

That movement may prove to be instructive. Not only is the drop in the current move similar in size - but up till now - it is also similar in structure.

Note - both moves began with an obvious drop followed by a small consolidation - then a much larger drop.

In October, the market then consolidated. The current market is now at that stage where a consolidation can be expected.

In October, the market then moved up after that consolidation.

If this market now consolidates and then drops - I think we can reliably say we have a trend change. If, however, it follows the October/November pattern - then the market is probably headed back up to the top of the channel.

The chances of at least a consolidation here are very high as the market is oversold with the RSI down at 32.5

So - we can look forward now to some chop - and then a decisive move, either up or down.

Of course the market might just surprise - and head straight back up or continue on straight down. Either way - if one of these happen - that should decide the matter of trend - bullish or bearish.

I tend to favour the up move either before or after a consolidation, it doesn't matter. More chop for the medium term investor, some relief from the angst of the long term investor - joy to the swing trader.

Cheers

Red

Market Comments: 25/01/2010 Part Two

OK. This is where events start getting interesting. Is the shite going to hit the fan or not?

Short Term - the market is over sold. See the number of the 50-Leaders below the 10-Day Moving Average. That suggests the next movement will be up. And the action today provides evidence for that.

The number of 50-Leaders below the 50-Day Moving Average is still above the oversold level. That indicator has now broken below the shallow uptrend line from November (see the black line). This suggests more down movement is probable until the oversold level is reached.

But - the number of the 50-Leaders above the 150-Day Moving Average has hit the down-trending support line (see the grey line).

So - we've got the short-term tension - very oversold - so it should resolve to the upside.

The medium term tension - which is to the down side.

And the long term tension - which is at the balance point.

Things are fairly evenly balanced.

Given the current state of the American futures - and the very oversold short term indicators - I feel sure that this will resolve to the upside.

But - you never know what will happen on the stock market.

Cheers

Red

Market Comments: 25/01/2010 Part One

The market dropped early today and then rose in a strong reversal day to the upside. The market still finished in the red - but a small set back to the bears. Shorters must be feeling a little nervous.

The Advance/Decline Ratio is at an oversold level and kicked up a little today but not enough to provide the bears with nervous tics.

The Advance/Decline Line is still above the Oct 09 high - this is a bullish sign. Breadth is not confirming the drop in the general market. Usually a drop in breadth precedes a major change in trend in the market.

Weekend RB Newsletter Summaries

INTERNATIONAL

Hong Kong and the Vix are considered leading indicators for the world stock markets. They seem to be signalling the start of a correction. While other charts are looking precarious, they haven’t broken down decisively.

Is this the start of a major correction? It is simply too early to say. We’ll wait next week on the third umpire’s decision.

AUSTRALIAN

The market is in a short term counter-trend movement. The long-term trend is still up.

Some Indicators are now reading “oversold”. On balance, the outlook favours a short-term bounce. A test of the November high (around 4800) provides a likely target for any short-term bounce. If the market can rise above that, we can then expect a test of the Santa Rally high around the 5000 level. A break below the 4500 area would be bearish.

Final Comments, 21/1/2010

Here's the regular 50-Leaders Oscillator Chart that I show.

The number of stocks under the 10-Day MA is still not down to the Oversold level. The number of stocks under the 50-Day MA is still quite elevated. Not down to a level where you might say - yes, that's far enough, it might go up now.

So a bit more chop - a bit more sideways to down action looks on the cards.

We'll see what the next few days bring.

Cheers

Red

Initial Comments, 21/01/2010

The market was well down today almost 1.%. The XAO has now broken below the trading range which has dominated the intra-day chart for some days.

The MACD is negative but still well above the Zero Line. The RSI is sitting on the mid-line - the demarcation between short term bullish and bearish. Williams %R is registering short-term oversold.

The market had a distinctly defensive stance with the 50 Leaders down -0.6% while the Small Ordinaries was down -1.8%. The best performing sector was a defensive sector (Telecommunications) which scored a +1.2%. (Eat your heart out, Futures Fund.)

The chart below shows the Advance/Decline Ratio has reached a level where a short term bounce is likely. I still think the market still has some way to go before a definite turn-around. So a bounce might just be enough to suck a few bulls back into the market, just in time to bash them again. But - for the time being - I'll be surprised if the market goes below 4800. So there's probably more chop to come. And both bulls and bears will get sliced up.

I may have some more comments later tonight.

Cheers

Red

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For those of you on the email subscription list - just in case you missed it - Woodside and Woolworths both gave sell signals yesterday when they crossed below the 150-Day Moving Average.

Cheers

Red

Final Comments, 20/1/2010

Well - I've done a lot of number crunching . . . and there's really not much change.

Today was a big reversal day. So What? It was an inside day. And the XAO remains within its trading range. So . . . it was a day of indecision.

Nothing in the 50 Leaders or the Advancers/Decliners stood out as being of any consequence. The Industry Sectors were all over the shop - typical of a non-trend day. Some up. Some down. The 50-Leaders were up a bit. The Small Ordinaries were up a bit more. But not enough either way to say that the Risk Taking or Risk Avoidance was upper most.

So - we're stuck in a trading range.

The market will tell us very soon which way it is going to go.

Cheers

Red

Initial Comments, 20/01/2010

Once again I'm showing an intra-day chart which clearly shows that the XAO remains within a trading range. This range basically stretches from 4885 to 4950 - only 65 points.

A move one way or the other out of the range should determine future direction for a while - maybe a week or so.

I still expect the market to fall a little - down to the November high before making another move. The November high was at 4817 - not that far away.

The market has now made no progress since mid-October - three months of no progress.

I'll be making further comments later tonight after I've done some more detailed analysis.

Cheers

Red

Final Comments, 19/1/2010

(Click on chart to get a larger view.)

The above chart shows the structure of the 50 Leaders in relation to the 10-Day, 50-Day and 150-Day Moving Averages.

Unlike the earlier post today, this shows a clear deterioration in the technical picture for the market. It also suggests that more downward movement is likely.

The % of stocks above the 10-Day MA fell to 24% - still above the oversold level of 20%.

The % of stocks above the 50-Day MA dropped to 64%. That's a big drop down from the overbought level of 80% - but in a bull market we would still expect it to drop down below 50% in an simple retracement in that bull market before turning north again.

So, the structure of the 50 Leaders deteriorated, but not enough yet to suggest that a turn-around in the market is imminent.

If we are, in fact, at an inflexion point in the market (and we never know until after the fact) then further low readings are likely and a big fall in the % of stocks above the 150-Day MA would become evident. We'll be watching this closely to see what happens.

Cheers

Red

Initial Comments, 19/01/2010

I don't often show an intra-day chart - but I thought I would today to show clearly that nothing much has changed. Despite the solid down day to-day on the XAO (down almost one percent), the main index remains in a trading range. That's confirmed by eye-balling the MACD and RSI on the chart which are basically going sideways. The RSI hasn't dropped particularly low or got up particularly high. At no time in the past four days would you say it had become oversold or overbought.

The MACD is below the Zero line - which is the bearish level. So I think we can expect more downside before a solid sustainable move up occurs.

This is confirmed to a degree by the 5-Day Average of the Net Advancers-Decliners which, although getting low, still hasn't hit a level where you'd say it's gone far enough. That usually occurs somewhere south of the -100 level and we haven't reached there yet.

To get down to that level we need to see the Advance/Decline ratio at around the 0.6 level. Today it was 0.75. The previous lowest reading on this retrace was 0.7 last Wednesday.

But - anything can happen on the stock market. But I'll be surprised if we don't see a lower low than today's by the end of the week.

One more comment. The 50 Leaders today was down -0.9% in line with the general market. The Small Ordinaries were down -1.3%. The differential is not huge - but enough to say that punters are still on the defensive - and that's in line with the down day to-day. Until a bit of risk taking comes back into the market, we can expect further downside in the near term.

I'll add to this comment later tonight after I've done some more analysis.

Cheers

Red

Market Comments: 18/01/2010

Another flat day today. The market was down early then slowly ground its way up to finish slightly positive on the day. The XAO was up just +0.1%.

The Advancers/Decliners were also flat 738/734.

The market showed a certain defensiveness with the 50 Leaders up +0.4% while the Small Ordinaries were down -0.3%.

The lopsideness in the market evident in the 50L/SO discrepancy fed into an unusually high number of New Highs on a 20 Day basis in the 50 Leaders. There were seven new highs and one new low. Five of those new highs were in the banking sector - a result of the late Friday guidance given by CBA which fed on to the banking sector today.

All in all, a lack lustre day. That often happens when America has a Monday holiday.

We could get some definite movement tomorrow in the markets.

Cheers

Red

Market Comments: 14/01/2010

The All Ordinaries was up about 30 points (+0.6%) today after being up nearly 50 points early in the day.

Buying today lacked conviction. Volume was low (about equal lowest since traders returned after the Xmas/New Year rest period.)

The 50 Leaders was up +0.8% - higher than the All Ordinaries, which suggests a defensive stance to trading.

The Small Ordinaries was down -0.3% - an unusually low figure on a day when the general market was up.

The XAO closed at 4929.3 today - good support lies around the 4930.

So, today was up a bit - not surprising considering the past two days down. The market is indecisive and favouring a defensive posture - volume down, blue chips up, small caps down.

The 50 Leaders showed little change in the stocks above/below relevant moving averages today. There still seems room for a little move now - but not a lot.

The market is still holding above the mid-October high. Further consolidation between that point and the high of three days ago seems likely before a decisive move is made.

Support and resistance on the daily charts: 4984/4834. That's a range of just 160 points. A break one way or the other from that range may prove decisive for the near term direction of the market. But don't expect anything dramatic to happen in the next couple of days.

Even if downside support at 4834 is broken, there is plenty of support under that level.

Cheers

Red.

The 50 Leaders statistics were not as dire as I thought they might be. The Stocks above the 10-Day Moving Average is still above the overbought level.

New Highs were Zero

New Lows registered just ONE. Worley Parsonas was the culprit after giving a negative outlook. I thought that with today's downward moving in the general market we might have seen a few more New Lows. However, this just goes to show how strong the recent run-up has been.

Some further downward movement needs to occur to work off the overbought levels - but that seems to be quite close in terms of time.

The Stocks above the 50-Day MA is still overbought - but in a bull market that is not unusual.

Tomorrow will probably be positive with some further negative movement after that - but not much.

This just could be a buying opportunity.

Keep watching the indicators.

Cheers

Red

Ok - we've had a couple of down days. The earth hasn't stopped spinning and the XAO is still above the high set back in mid-October. So - there's the first line of support and the market today dipped below that level and then bounced above it.

The high in mid-October was 4897 and today we finished at 4900.1. Close enough to a round hundred number. So we can expect a bounce tomorrow. After that? If we drop below 4900, we're looking at the next support level, in round numbers, of 4800. And plenty of support below that.

I've noted in internet chatter a lot of speculation that this is could be the start of a major down trend. Well, I think it is much to early to speculate on such a matter.

The 13-Day Simple Moving Average still hasn't turned down yet.

The RSI on the Advance/Decline Line has crossed below its 5-Day MA - so there is likely more downside. How much is still a matter to be seen.

Later tonight I'll publish figures on the 50-Leaders and I suspect we'll see the first 20-Day New Lows since before Xmas. If we find that occurring - that will also be a sign that further moves down are coming. But - I'd better wait till I do the calculations before getting too carried away.

The market was very overbought - so a retracement was a high probability. Whether it is any more than the market blowing off a bit of steam is still to be determine. A lot has to happen before we can say this bull rally is dead.

In the meantime - the long term trend is up. And this may just be another buying opportunity in the near future.

Cheers

Red

Advance/Decline Line RSI - 12/01/2010

The Advance/Decline Line registered its first bearish reading in many days.

The Relative Strength Index of the A/D Line has reached extreme readings above 90 not seen since August. The Index is now rolling over and close to a bearish cross of the 5-Day Moving Average.

A cross below the 80 Level on the chart would confirm a retracement.

Cheers

Red

Vix - American Market

This is one of the most AMAZING charts I've seen for months.

This is a chart of the VIX, also known as the Fear Index. The VIX measures the implied volatility for the market over the next 30 Days. It does this through a statistical measure of the put/call ratio.

Last night, in America, the VIX gapped down below the supporting down trend line. Then the white candle finished completely below the lower Bollinger Band. Something that has not happened in the last six months (see chart above).

So - why is this so amazing? Well - it suggests, firstly, levels of complacency in the market unseen in the past six months; i.e., a big majority of punters are not expecting a retracement in the market. They are expecting further upward movements. So . . . who's left to buy this market? hmmmmm.

A close inside the lower Bollinger Band would be a strong signal that this market is about to go into bearish mode.

Market Comments: 12/01/2010

Today we saw the first big black candle since mid-December. The over-bought readings are beginning to bight. Expect further downward pressure on prices.

Here's the cruncher. There have been no new 20-Day New Lows amongst the 50 Leaders since before Christmas.

Until we see the 20-Day New Lows lift off the Zero level, the trend remains upwards.

Cheers

Red

It's hard to find something insightful or witty when the market continues on its "overbought" status higher.

So - it is overbought - it's about time it came down - tell that to the market. :))

Well - one day very soon it will listen to us poor peasants.

The RSI is over 72 - the overbought level is seventy. The market won't be listening to us until it drops decisively below 70 - then we'll see a retracement. A correction? Unlikely - until we get into a seasonably favourable time for corrections. February at the earliest - probably April.

We shall see.

Cheers

Red

The Weekly MACD is still below its signal line. The Williams %R (30) and the Aroon Oscillator are both reading “overbought”.

The Index price is clearly at the lower end of an important resistance area (about 4950-5250) and at the 50% retracement level of the bear market. A break above that area concurrent with a move by the MACD above its signal line would be bullish. Further consolidation in the near future seems probable. A break below the 4500 area would be bearish.

This week, the Daily MACD is above the Zero line and above its signal line. The MACD Histogram is falling (the market is losing momentum). The Aroon Oscillator and Williams %R (30) are both above their over-bought lines and have turned down.

Given the over-bought momentum readings on both the Weekly and Daily Charts, a retracement is highly likely. This may just be a test of the mid-October high, but more likely a test of the early-December high.

Cheers

Red

AMERICAN MARKET, CONTRARIAN THINKING, SENTIMENT

Contrarian Investors believe that the vast majority of investors always “get it wrong”. Well – that oversimplifies the situation, but you get the general idea. Contrarians look at Sentiment Indicators and when these are at extreme levels, it might be best to begin taking an opposing view of the market. Extreme optimism about the market would suggest that a retracement or correction is in the offing. The following are some of the sentiment indicators in the American market followed closely by contrarians:

VIX Index: (Derived from Option data, the VIX or Fear Index reflects views on market volatility for the next 30 days. Low Vix = Complacency, High Vix = Fear). The VIX Index hit a 26 Month Low on Friday, 8/1/2010.

Advisory Service Sentiment: (A survey by Investors Intelligence of a broad range of stock market newsletters.) At the end of 2090, there were 51.1% Bulls to 15.6% Bears – a ratio of 3.28/1 Bulls/Bears. That’s the highest reading in six years. This week the ratio dropped a little to 3/1 – still an extreme reading.

CBOE Put/Call Ratio: 0.564. The range for the past six years is 0.35 to 1.35. This reading is not extreme but shows above normal optimism. Punters are buying about two call options for every one put option.

Liquidity Ratio – Equity funds. Following is a chart of the Liquidity Ratio for American Equity Funds going back to 1999. The Liquidity Ratio measures the amount of cash held by Funds compared to the amount invested in the stock market. Since mid-2009, Funds have made a mad rush to invest in the market. Previous low points were seen at the end of 2007 and late 1999. And we all know what happened after that.

LATE NIGHT COMMENTS. 7/1/09

(Click on the above chart to enlarge.)

Slowly the market is working off its overbought readings.

The per cent of stocks from the 50 Leaders above the 10-Day Moving Average is now below the overbought level of 80 and heading down.

The number of stocks from the 50 Leaders making new 20-Day Highs was still at a very high reading of 16 stocks (32%) even though the market had a down day. No new lows were recorded for the tenth trading day in a row. That's a remarkably bullish run.

The Advance/Decline Ratio was still at a bullish reading of 1.4:1, while the UpVol/DownVol Ratio was just below parity at 0.99:1.

This Santa Rally is not giving in easily.

Cheers
Red

Initial Comments. 7/1/2010

(Click on chart to enlarge.)

Another relatively uneventful day on the surface. The XAO was down just 0.33%.

Once again the market was dichotomous. Financials were down -1.1% while Materials were up +0.3% and Energy up 0.6%.

Materials and Energy became more overbought. The RSI of Materials is up at about 72 and Energy was above 72. When they fall the market will fall to a much larger degree than today.

The RSI for the XAO has now dropped from above 70 to below 70 (68.4). This is a short term sell signal. Expect further falls.

We're coming into a bearish time of the month. The last week of the old month and the first week of the new month tend to be bullish - then the market goes into a bearish stance. So seasonality supports the idea of further falls.

Cheers
Red

Another thought. 6/1/2010

(Click the above chart to see a bigger version.)

Here's another view of just how overbought the market is at the moment.

The XAO is very close to +3 standard deviations away from the 50 Day Moving Average.

That is an extraordinary figure. Since the second phase of the bull market began in July 09, the market hasn't been near a +3 Standard Deviation move above the 50-Day Moving Average. Mean reversion will prevail. This market is set for a big retrace.

Cheers
Red

Market Comments. 6/1/2010

(Click on the Charts above to see a bigger version.)

Well - if you look at the broad market index (XAO) nothing much happened today.

Well - it did.

It was a tale of two stock markets. Metals and Miners Sub-Sector was up +1.7% and the Financials down -0.8%.

The Advance/Decline Ratio was 1.6:1 (much higher than you would expect on a quiet day) while the UpVol/DownVol Ratio was a whopping 2.4:1.

When the market has these split days with Miners much higher than Financials, the market can appear flat - but the risk appetite is quite high. Punters get stuck into the small miners - so lots of up volume, and the advances outrank the decliners quite considerably.

The Metals and Mining has now closed outside the top Bollinger Band. The last time it did that was in mid-September. The RSI on this Index is now over 71 - higher than any time in the past six months.

This market is ripe for a pull-back. Will it? Who knows. But when it does - it will go down relatively quickly. Enough to change the long term up-trend? Who knows. We'll wait and see what happens. My betting is that the market will retreat and then continue on its merry way upwards in the uptrending channel.

But if it breaks below the support line of the uptrending channel - look out below.

(And watch out for black swans careering down the road if you are crossing at the green light on the pedestrian crossing.)

Cheers
Red

Late night comments, 5/1/2010

(Click on the charts above to see a bigger version.)

The first chart above shows the number of stocks from the 50 Leaders making new 20-Day highs. This is now at an extreme level of 60% (30 stocks). At the previous high of the All Ordinaries (XAO), in mid-October, the percentage of stocks making new 20-Day Highs was 40% (20 stocks).

This is beginning to look like a blow-off top.

Then look at the next chart.

This now has the complete profile of an over-bought market. The percentage of stocks from the 50-Leaders above the respective 10-Day, 50-Day and 150-Day Moving Averages is as follows:

• Above the 10-Day Moving Average - 90%
• Above the 50-Day Moving Average - 90%
• Above the 150-Day Moving Average - 96%

These stocks can, of course, stay up there for extended periods of time. But when they start to fall - this market will probably fall hard - at least in the short term.

What's fascinating about these stats is, while the number of stocks in the 50-Leaders making new 20-Day Highs is at an extreme (new) high, the percentage of stocks above the 10-Day Moving Average has dropped back in the past two days from 98% to 90%. hmmmm. Somethings out of kilter here. This divergence may or may not mean something. But it certainly looks ominous.

Cheers
Red

Market Comments, 5/1/2010

(Click on the above charts for larger versions.)

Very simple initial comments today. The market is overbought (so what else is new?)

But as the great stock market guru once opined: Overbought can get more overboughter!

RSI is now above 70. The market won't turn down until the RSI turns back down below 70.

The market has been up seven out of the eight last days. That's about as far as a market goes without consolidating or retreating.

The XAO now seems to be in an upsloping channel (see top chart). If we get a drop here it should go back somewhere close to the bottom of the channel - now around 4700.

If the XAO breaks higher, then it's probably going into a blow-off top. Which will end badly.

About three months ago (at the first Brisbance meet-n-greet for investors) I suggested that this bull rally would only finish with a blow-off top. We may be going to see that now.

But - if we get a retracement - then this bull rally will have more legs.

Let's see what the next couple of days will bring.

Just one more point - the Ozzie Dollar is once again rampaging upwards. It's now broken back above the neckline of the Head-n-Shoulders top - so more upside seems likely. In that case - we may be looking at a blow-off top on our market. We shall see.

I'll add more comments later tonight after I do more analysis.

Cheers
Red

First Post, 2010 (04/01/10)

Today's action was muted. The day range was the smallest since ........ I don't know when - but certainly for many many days. A day of indecision, lacking conviction. The market seemed to be pausing to see which way the American market goes tonight after its big fall on New Year's Eve.

A narrow range day is usually followed by an expanded range.

Which way will that be - up or down?

Given the overbought status of the market - the odds are to the down side.

The number of stocks from the 50 Leaders above the 10-day Moving Average remains at an elevated level - 96% and it has been above the 80% level since 24/12/09. Usually a spike above the 90% level falls back quickly. But not this time.

In the medium term, the market is still looking strong. So after a pull-back we may see further strength - but that will depend on the depth of the retrace. We'll reassess after the pullback occurs.

General Comments, Week Ended 31/12/09

(Click on the above charts to see a larger version.)

The market is currently at a critical juncture. It is knocking at the year high set back in mid-October. (The main-stream press told us on Thursday that the market set a new yearly high. Well – that is sort of correct and sort of not correct. It was a new high on a close basis but not on an intra-day basis. Given a choice, the mainstream press will almost always opt for the more optimistic of two choices where the market is concerned.)

Technically, the market is giving mixed signals – some bullish and some bearish. Given that situation we can expect at least a short term pull-back. Then we may be able to re-assess the situation. A decisive break above the mid-October high would be very bullish. A break below the 4500 area would be bearish. That leaves a lot of wiggle room if the market does decide to pull back.

Long-term, the trend is still up. The past 2 ½ months appears to be a consolidation at the highs of the year. Such a consolidation normally breaks to the upside. So the weight of evidence in the medium-to-long term is still with the bulls until proven otherwise.

The Decade Trend and the Presidential cycle suggest a reversal to the downside sometime in the first quarter of 2010. We’ll continue to monitor that scenario closely. Remember – that is just a scenario – not a prediction. And watch for Black Swans – they can appear at any time.