Saturday, March 25, 2006

Masquerade Bull

You won't recognize me today because I've stuck these bull horns on top of my furry head. I want to make an earnest attempt to make a bullish argument for the market, since I think taking an opposing view is probably healthy. I'm still a bear at heart (albeit less passionately so, given the market's frustrating behavior), but let's take a look at some charts which point up instead of down.

First, there's the Major Market Index ($XMI) from the Amex. This index is pretty unusual in that instead of ascending, pushing up against a resisting trendline, it's formed a nice inverted head & shoulders formation. It just barely sneaked above the neckline recently, but should it clearly break above this neckline, it could mean a clean run up to about 1,180 (its all-time high) based on traditional measurement methods.


Argument number two is the fact that the market isn't seeming to "break", even in the face of a lot of bad news. We've got a war going badly. We've got what was formerly the mightiest corporation of the planet (GM) teetering on bankruptcy. We've got personal bankruptcies at an all-time high. And we have interest rates which have blasted higher and have taken the steam out of the housing market.

So where's the collapse in the stock market? Nowhere (yet). Here, for instance, is a chart comparing interest rates (black graph) to the S&P 500 (blue graph). Notice that the stock market not only doesn't seem to care about the higher rates, it actually seems to defy them!


Argument number three is the recent breakout of the Dow 30. For many months it was pushing up against resistance. It has broken above this resistance, and it has not gone beneath it. So the upward line that was resistance is now support. I'd mention the same thing happened to the Russell 2000 on Friday.


Lastly, a similar argument for the NASDAQ Composite. Besides the breakout, it's even got a cute tiny inverted H&S pattern above the breakout, which also suggests an upward push.


My bearish hope is that all of these charts represent the "last gasp" in the bull market we've seen over the past three+ years. But until and unless the prices clearly exhausted themselves and change direction, it's going to remain a frustrating, day-by-day wait.

5 comments:

kapil khanna said...

I think your market observations are spot on. When a reversal occurs, there will be definite signs and lots of opportunites on the way down.
From a cyclical point of view, the last bull market lasted nearly 5 years and the bear market 2 years (1/3 rule- Bear markets last 1/3 the time of the prior bull market). At the tail end of the earlier bull market, the general market was euphoric. Where we are currently, its been a little less than 3 years and things are no where close to be euphoric.

Tim Knight said...

Super Bull,

I'm not switching camps. At least not yet. I was simply trying to see things from another perspective and offering some non-bearish views.

This is anecdotal, but I'd point out something interesting.......Frank Quattrone was crucified after the collapse. Prison sentence. Banned for life from his profession. In the past week alone, the judgment was set aside (for a retrial) and the ban has been dismissed.

It's almost as if, now that the market is strong again, all is forgiven. I'm just waiting for an investment bank to scoop him up and tell him to "go get 'em, tiger!"

It just seems that the zeitgeist has returned to the devil-may-care days of the late 90s in more ways than one.

- Tim

Platinum Certified said...

Hi Tim,
I found your website not long ago and I’m glad I did!
I’m new to trading and like to learn more. I have been learning for six years on my own.
Nice charts and educational material. Thank you.

My opinion market will to go up because it has to catch up with inflation plus some rewords for investors. The DOW JONES INDUSTRIAL AVERAGE will go to 15000 to 19600 before year 2010.

Platinum Certified said...

Hi Tim,
I found your website not long ago and I’m glad I did!
I’m new to trading and like to learn more. I have been learning for six years on my own.
Nice charts and educational material. Thank you.

My opinion market will to go up because it has to catch up with inflation plus some rewords for investors. The DOW JONES INDUSTRIAL AVERAGE will go to 15000 to 19600 before year 2010.

Chris Berte' said...

Trader Tim, You've gone to the Dark Side! Blasphemy! Who are you..and what have you done with Tim?!?