Party Is Over

Six week long rally is over. It was huge. Dow Jones is up almost 1500 points.

But party is over. Dow Jones fell under 13 day moving average, same thing happened to S&P 500 and Nasdaq composite. I had some hope that Naz can stay above 13 day MA, but no such luck. This is a major technical signal, discussed several times in my entries:

The Signs of The Bottom: Technicals
Dow Is Over 13 Days MA!
This Rally Might Still Have a Chance
Dow Rally: New Milestone
This Wonderful Rally
Exhaustion?

Now what? According to 1932 scenario, we might have 2-3 months long slump, followed by another bull market. Or market can go down big time, cross down 50 day MA and test March lows. I think that Dow is going to stay in 7000-8000 range for a while, but Mr. Market might have couple of surprises for us.

Important decision time. I'm going to act on a premise that Fed is in control of the situation and current crisis is just a Great Recession, which is not going to become a Great Depression 2.0. Which means that either March low holds or new low will not be much lower. With stocks going down, I'm going to load on three groups: tech, financials and bonds. Particular stocks are to be defined. To reduce risk, I'm going to keep transaction sizes small and take profits if I feel they are good enough. No particular stock picks right now, need to see the action.

Exhaustion?

Rally is still rolling. Nothing to complain about, yet. But it should end sooner or later. We are in the sixth week of it so far, and we might have two more, three tops.



The biggest technical hurdle seems to be Dow Jones 8000. We didn't see confirmed breakout though this level. With 13 day moving average closing to 8000, rally is starting to show signs of exhaustion. It looks like Dow is settling in the 7000-8000 range. Which would be an achievement anyway, compared to horrible slump in February.

Bad technical sign: so far Dow didn't break downtrend which started in November 2008 (green line). Good sign: current rally broke major downtrend started in September 2008 (blue line). It probably means that we are over the major panic, but not over the planned sell-off.

Sentiment is improving, which is a bad sign too. Reaction to earnings have changed: big sell-offs after great earnings at Goldman (GS), Intel (INTC) and Abbott Labs (ABT) look pretty bearish to me. Compare that to reaction to Research in Motion (RIMM) earnings two weeks ago.

Of course, I can be wrong and rally can continue through Dow 8000 and break November-April downtrend. Next several days will show us direction. I'm sitting tight, not buying or selling anything.

I completely ignore fundamentals right now, because market ignores them. Mr. Market is smarter than any of us.


Full disclosure: at the time of publication author did not have positions in any stocks mentioned. Positions can change any time.

This Wonderful Rally

Just returned from vacation and market looks better and better. Dow Jones is running over 13 day moving average like it did in 1932. Let's take a closer look at the market.

Technicals

Like in July-September of 1932, 13 days moving average is the most important indicator. All major indices are running above it. Dow almost touched it couple of times, but never crossed down since March 11, not even intraday. All indices are also crossed above 50 days moving average, and 13 days MA is above 50 days MA. Dow is also holding above very important technical level of 8000. Granted, some technicals show signs of exhaustion, for example, breadth is down, but overall things look bright.

Sentiment

Strangely enough, after a month long beautiful rally, a lot of market players still don't believe it. For example, Todd Harrison thinks it's a bear market rally. Quick look at CNBC today doesn't show very bullish sentiment. Notably, Jim Cramer and Doug Kass are both bullish, but overall sentiment is bearish to neutral, which is, of course, is a bullish sign.

Fundamentals

Honestly, fundamentals are as bearish as they only can be. It looks like S&P 500 index had negative earnings in the first quarter. If so, it would be the first time since times unknown. There are some positive surprises, mostly from tech companies. But they happen after multiple downgrades and don't compare favorably with year ago quarters. Bank earnings don't tell me anything, because with all accounting changes you can't compare this quarter earnings with the last year. So fundies are bearish.

Again, who cares about fundamentals in technical market? This rally looks good so far and I'm not selling anything until Dow breaks down through 13 days MA. Next support levels are 8000 and 7500. If it retraces below 7500, we can get to March lows or even lower. I think that we had a bottom in March, but you never know until it's too late. On the way up, rally has one height to take: 200 days MA. But it's way too high from now and I don't think we'll get there without some dips.

I Am Back

I am back from vacation. Extremely pleased by continuing rally. Keep watching, new articles are coming soon...

See You In a Week

I'm out for a week. Will return on 13.

So, Jim, It Is (Has Been) Depression After All?

Jim Cramer came clear today on CNBC. Both in "Stop Trading!" and "Mad Money". We are in depression. He actually said that we have been in depression, but I'm not that sure. Even if we had the bottom of the stock market in March. Thing is, during previous depression, bottom was reached 1932, but Great Depression was going on for several years more.

But this is not about nuances. This is about a role of a journalist. Jim just confirmed that he lied to us on TV since September 2007. Every time he said "depression is off the table", every time he called current time "recession" he lied. He thought one thing and told us another.

I already wrote here that it's no business of a journalist to try to form opinions. Journalist should report facts and if he wishes, his interpretation of facts. If he knows something related to his reports, if he can prove or at least argue it, it's his duty to report it. The only exception is somebody's personal life, although there are a lot of reporters who don't care about people's privacy. But this is an event of the century. And one of the best in the business refuses to tell us exactly what he thinks about it.

Jim, this is not acceptable. You made mockery of journalism. I don't care that correct information can scare somebody. For every scared person there would be at least one who can make correct conclusions. Politicians are listening to you, correct definition could've made them act faster.

Dow Rally: New Milestone

On April 1 Dow Jones index reached new milestone: 13 days moving average crossed over 50 days moving average. And this is not Fool's day joke. This is an extremely bullish signal. Again, I am sure that this rally can continue while Dow is over 13 days MA. Why Dow? I don't know. Of course, S&P 500 is much more representative, and Nasdaq 100 looks more bullish this year. But in the last 18 months Dow technical indicators have been showing market direction much better.