Swenlin...10/24
There is still nothing resolved regarding the head and shoulders top we have been watching. It is still progressing and it still looks good, although almost many of our ST indicators switched back to buy signals today -- we're starting to get whipsaw associated with the narrow trading range. To clarify again, the formation is visible in the price movement of the S&P 500 and NYSE Composite over the last three weeks. The neckline is at about 1050 for the S&P and 548 for the NYSE.
When something looks this good, I have to question it because it must be obvious to everyone, and we need to consider other possibilities just in case. Head and shoulder formations are well-known for being fake outs when the market is in a bull phase. Bull phase? Well, even though I think we are in a secular bear market, we could be having a short, cyclical bull market (or bear market rally) within that longer-term bear market. I know, I know, that makes no sense in terms of valuations, the economy, and the terrorist threat, but the market often defies reason, which is why we must keep in touch with the technicals.
In hindsight we will see this head and shoulders as a distribution pattern IF it executes (violates the neckline) and follows through to the downside. If the head and shoulders pattern does not execute, and the market moves higher, it will have proven to be a consolidation that will have corrected the previous advance -- a consolidation in place of a correction or retest of the September lows.
The market has been unusually firm considering everything it has going against it, but for now I'm looking for the head and shoulders to execute. I just thought it would be best to point out that it is not a lock . . . just in case somebody has taken out a mortgage on the farm and dumped it all in OEX puts.
I have moved back to NEUTRAL on bonds. Yesterday the 30-year bond yield gapped up, but today it jumped back down across that gap and is almost back to support. We could wait for the support to be taken out or for another rally, but this behavior is so radically different from that which was expected I see no good reason to hold our bond SELL Signal.
--Carl Swenlin |
