Saturday, January 3, 2009

2009 Year of the Bull

Happy New Year. 2009 looks like it will be a bullish year for the US stock markets.

The trading on January 2nd was about as good as one could ask for, in particular the market breadth was extraordinarily strong, pushing the McClellan Oscillator to new highs. This is highly significant, the previous MCO reading above 300 occurred with weak advance-decline index values. This indicates that the markets were just working off an oversold condition in a bear trend.

The current +345 MCO reading is occurring with both the advance-decline index values in positive territory and with the 10% index in a bullish out-of-limit condition at +622. This indicates that any pullback will be followed by a retest of the current highs. I view this reading as impulsive and therefore bullish for the overall market.

The one caveat is what happens on the next strong pullback. In order to verify a trend change we need to see a higher low. Obviously the markets do not rise in a straight line and we can expect a strong correction at some point. Over the last 18 months, every market correction has seen the 10% Index fall below the -500 level which indicated to me that the downward trend was not finished. This is still true. So before we can get strongly bullish we need to see the 10% component hold the line above -500 in the next major correction.

Further, the markets are a bit extended here and we can expect a correction at any time over the next few days. I do no believe the correction will be the start of another leg down, at least not yet. At this point it appears that the markets will continue to trend higher into the latter part of 2009. Because public sentiment is so bearish, corrections will be sharp and scary.

The S&P 500 65min Cycles
Click to expand

The S&P 500 Daily with measures and cycles
Click to expand

The McClellan Oscillator for 1/1/09
Click to expand

The McClellan Oscillator 1998 to 2009
Click to expand

Percentage of stocks above their 50 and 200 day averages.
Click to expand

Percentage of stocks above their 50 and 200 day averages. 2002-2009
Click to expand

The Bullish Percent Index for the 50 day average is getting up into the resistance zone. This doesn't mean we are going to have a correction but we could see a bit of a pause. Since the 200 day Bullish Percent is in the toilet the 50 day can stay above 50% for an extended period of time.

NYSE Short Interest
Click to expand

The NYSE short interest has been remarkably high but is contracting as we speak.

GLD, the Gold etf.
Link to previous post with this chart
Click to expand

No comments: