The stock markets remain fickle and enigmatic. Some broad stock indexes are making new all time highs at the same time that the Dow 30 and SPX are below their highs of 2000. NYSE breadth measured by advances and declines and the Mc Clelland Indexes remains weaker than the index price. John Hussman's value and breadth approach has his HSGFX totally hedged and his gains at under 2% year to date.
An oddity is the American Association of Independent Investors' sentiment index (AAII)having more bears than bulls, normally seen only at intermediate or long term lows. http://www.hal-pc.org/~wsrafuse/BULL-BEARS.gif Normally AAII is heavily bullish when indexes are making or nearly making new highs, so it would be a miracle (or an anomaly in AAII's data) for them to be right at this time. My own sentiment measures are fairly high in the bullish ranges they have established over the past year, but not higher than in January or March.
Several cycle index makers feel a market downturn is due, and my own cycle index suggests a down turn followed by a rise to new highs inoi next year. But such studies are more like a game or an amusement and one can't bank them.
Lagging economic indicators have turned modestly down again as they did in early 2005. Whe they turn down, lagging indicators are thought to be saying that "things are as good as they can be", but of course they can turn up again as they did last year.
The Bagpiper System is about to signal another sell unless the SP futures make new highs tomorrow. My portfolio remains pretty well hedged, but if we make new highs tomorrow I may remove some hedges and lighten up on golds which have had an enormous run.
Despite the above comments I am not bearish, and I think we have to be ready not to miss a big breakout and run up in various sectors which benefit from or adapt well to inflation. I take the inflation phase of Kondratieff very seriously, and the broad market should do well on a trend basis over time. By the way, I published the "Chart of the Year" on April 8, but then I got short term bullish based on the severe drop, and bought some long bonds the Thursday before Easter. They did well for a few days and then dropped back down near where I had bought them and I exited. Barring a recession in an inflationary phase, bonds are not place to be even for a "dead cat bounce".
The chart shows a plausible case for an upside breakout and larger run up in SP500. First note the Elliott Wave labelling from 2000 to the 2003 low. For a long while there after I wasn't sure whether or not there would be a "D" and then "E". I think it much less likely now for that to happen.
Most of us in the market have felt the lethargy and heaviness since early 2004, excepting hot Kondratieff sectors: metals, oil, and emerging markets primarily, and continuing moves in small and mid caps. As late as last October the SPX had done nothing since March 2004. That, my friends, was a correction. I am labelling it here as a "running triple three" a b c with c being above the March 2004, hence "running". This is a bullish formation going into a third wave.
Price has risen above several important lines: the shallow downtrend line from 2000 was pierced and retested in December. Likewise a line up along the highs from March 2004 to March 2005 has been bettered. The thicker cyan line is not a true trend line, but I think it's important. It is the continuation of a line up from the 1982 low, at the start of the great bull market, through the 1998 low, which was the largest correction in that bull market until 2001/2002. It is a "moving average" or average weekly move of the bull market. The market of course went far below it in 2002, but now it has come back and surpassed that line which is a sign of strength. If SP500 can stay above that line, it has a shot at new all time highs as many other indexes have already done
Click on the chart for a larger version.
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