Monday, May 4, 2009

Don't Fight the FED

The US markets are behaving bullishly, why? Because it is in the best interest of the country to stop a financial collapse and the government is going to do whatever is necessary to assure this. All the old rules are out the window.

The lower chart goes back to 1929 and is a good indication of both how bad the recent decline was and that this may be the be the buying opportunity since the great depression. The potential to retest the February lows still exists but any such decline will be quickly retraced. This is not a 1929 scenario, that is what the mega-bears expect and are positioning for -- so it isn't going to happen.

In the upper chart, the 10% Index is again above the +500 level indicating strong upward momentum and that any correction will be followed by a retest of the current price highs. Concurring with this, we are going to retest the price highs made earlier in the year. I don't expect the following correction to be as severe and that the trend of the market is now positive and targeting the 1200-1250 zone (roughly the 5 year price average)

The McClellan Oscillator and Summation Index
Click to enlarge

The SPX from 1929 to April 30, 2009
Click to enlarge

No comments: