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12/3/07: The SPY has been in a clear downtrend since my last post ("The Ugliness Continues") but that maybe about to change. Stay tuned.
The market violated first its trendline on 10/17, then 3 days later its 4 week low. It attempted to rally, ran into resistance exactly at its July peak of 140 (funny how these support and resistance levels seem to really work out), then sold off straight down to 127, a point above the 126 spike low of the August sell-off.
Now the clear 4 week trendline has been broken with a strong, wide-ranging day and 2 days of trading after in a narrow range.
It look as though the bulls are setting up to run the market higher. Seasonality is on their side - December is a strong, safe month for the S&P 500 and we are entering the bullish stretch that usually lasts from mid-late November through January. Interest rates are lower on a year-over-year basis, and valuation is not outrageous (but questions about the E part of the PE remain given the subprime mess).
Fundamentally, things remain pretty awful, with the dollar having lost 40% of its value peak-to-trough, an economy that is 70% dependent on the consumer to leverage himself so he can buy some more thing she can't really afford, combined with profligate government deficit spending...
But then again, they say to buy when blood is on the streets.
They also say not to try to catch a falling knife or it'll be your blood in the streets.
I anticipate the market will retest its recent lows, maybe not get quite down the 127-128 range, form a double bottom, then surge back to the 140 level or beyond.
We shall see...
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