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09082010 September 8, 2010

Posted by easterntiger in economy, financial, markets, stocks.
Tags: , ,

Weather Report Interim  09082010

Current Positions  (No Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) up to 20-30%  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 09/08   -17.65, -28.03, +8.9, +13.41

(3wks ago/2wks ago/1 wk ago/this week)

It’s quite possible to disguise the nature of the markets over the span of a few days, or, for as long as you just read or listen to sound bites and headlines, where they are quick to announce trends of 3, 4 or 5 days in a row, or the highest or lowest marks in weeks or even months, as if these are important to long term positions.

However, what is unmistakable is the success or failure of the indexes to break above or below more established barriers, whether or not weekly or even monthly highs or lows are exceeded.

One such barrier to which I repeatedly refer is the 200 day moving average – ‘moving’, because, it is updated every day from the average of the past 200 days.

The Dow has spent 2/3 of it’s time below this key level since first piercing it during the mini-crash of May 6th, and where it continued through (below) two weeks later.  The 15 weeks since the mini-crash have also provided no direction up or down.  However, during this entire period, the 40 week trend line, an even more significant, longer term barrier, remains above all of the activity during this time, essentially creating a ‘ceiling’ above any appearance of strength, no matter how convincing it might appear to be for any single-digit number of days.

When rising or falling, the 200 day moving average denotes an uptrend or downtrend.

Currently, this average line is shifting from flat to falling slightly, near 10450 on the Dow Industrials, and near 1115 for the S&P500. The highs of the past 3 days are just below these levels, for the Dow Industrials and the S&P500, respectively.

Significantly, 1 -these lines have been breached (downward) 4 times since the early May mini-crash, and 2 – Every rally attempt above this line has failed within one week from each peak.

Three previous rally attempts went above this line, while the last attempt last week failed to even reach the line before turning down.  Last Friday appears to be the turning point for this fourth rally attempt.  Although a change in direction upward is possible, it appears to be getting to be more unlikely each week.

Until these indexes are able to rise above and hold these levels, every rally should be viewed suspiciously and risks in equities will remain higher than normal.

No bullish momentum is truly reliable until it can reach and hold or exceed the following levels, near the highs for the year.

S&P500 – 1200            Dow Industrials – 11,000

Anything else (lower than these levels) is still within the relatively narrow 4-month ‘trading range’

I plan to increase F fund allocations if these equity indexes fail to hold these levels.



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