| The Intermarket Report, March 21, 2008 |
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| Written by Administrator | |
| Sunday, 23 March 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsMarch 21, 2008 U.S. stocks forming major bottom – trading lessons 1 & 2Who would have expected Bear Sterns to trade at $2 per share with the fed cuting an emergency .25 point on a Sunday? Who would have thought we would see Crude back below 100 and gold almost at $900 so quickly? Anyone reading my article 2 weeks ago would have been advised of the extreme over bought condition in the commodity markets and was advised not to get greedy… All of this uncertainty has led to the most volatile stock market that we have seen in 80 years, as S&P research has found. Daily ranges in the market have soared to several hundred points per day! Despite all of this I think the charts can still be of use. As the great trader Jesse Livermore once said, “Wall Street never changes. The pockets change, the stocks change, but Wall Street never changes because human nature never changes.” The last time I wrote about the stock market was on January 18th - “Stock market at MAJOR buying opportunity” (http://tradesystemguru.com/content/view/142/58/). From that Friday close prices rallied over 5% in the next few weeks, and over 11% from the lows on the next day of trading. Price weakness once again sneaked its way into the market as people became too confident once again. I think that we may now have made a bottom in stock prices and there are many bullish arguments supporting it. Firstly, if you look to figure 1 you will see how commercial traders have significantly increased their long position over the past few weeks. We are essentially back to the same price level as we were over a month ago, but commercial traders are now much more bullish. As well, there is a usual upward bias in prices from March until late summer as indicated by the green arrows. If history is any help, it should repeat itself especially given commercial buying and the strong sell off we have experienced.
Figure 1 chart by genesisft.com As well, I have been developing my own synthetic proxy for investor sentiment. It is based solely on price, but when compared to actual sentiment data, it follows it very closely. If you look at figures 2 & 3 you will see that virtually every time my sentiment index became over sold on the monthly chart, we have made a very important multi-month bottom. It was oversold in 2005, 2003, 2002, 2001, 1999, 1998, 1997, 1994, 1992, 1990, 1987, and 1984. What a record! We are back at that level now in the sentiment index, and this is not something I want to argue with.
Figure 2 chart by genesisft.com
Figure 3 chart by genesisft.com However, we still need price confirmation. I believe that prices have bottomed, but the market needs to tell me that I’m right. If you look at figure 4 you will see that despite the higher low in the Dow, the S&P 500 has made a lower low. The Dow is clearly the stronger of the 2 indices. If the Dow could rally above its recent high of 12756, that will confirm this market bottom.
Figure 4 chart by genesisft.com Trading Lesson 1Last week I presented the possibility of a move up in the Canadian dollar. Well, the big plus that chartists have that fundamental analysts don’t is that the market tells us when we are right or wrong. The CAD never broke out and never confirmed the bullish factors and therefore there was never a reason to buy it. Confirmation is crucial as I did mention last week.
Figure 5 chart by genesisft.com Trading Lesson 2One market that did confirm was Soybeans. After writing on this market on February 29 (http://tradesystemguru.com/content/view/158/58/) when it was trading at 1536, it has now virtually collapsed to 1207 after reversing its exhaustion gap.
Figure 6 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Monday, 31 March 2008 ) |
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