Thursday March 19, 2009: The S&P 500 (SPY 78.94) has surged dramatically from its low of 66 and change. Note that the market did a few things on March 10 that a vigilant chart reader could have profited from for a nice swing trade:
- exceeding and closing above the highest highs of the past 3 days following a very protracted decline;
- extreme gloom in the financial and mainstream media;
- no end of fundamental reasons to sell;
- loss of faith in the ability of our leaders to get us out of this mess.
The rally did not look back but the knocking out of the trailing 20 day high (lowered to just around 80) should make traders look for an entry point to go long. A pull-back to at least the 75 range would not be surprising giving the speed of the rally; if it fails to rebound much or sags back to the lower end of the range, anticipate the next, hopefully final leg down.
At 27.4x trailing earnings, the S&P 500 is far from cheap, even if those are depressed cyclical earnings. Other significant market bottoms have occurred at single digit PEs, although interest rates were much higher at those bottoms. The earnings yield is not horribly below the 10 year yield, but we will see what all this blowout government spending will do to the bond market and the dollar. Transfering wealth to AIG derivatives traders away from taxpayers does nothing to solve the problem, but much to prop up business as usual on Wall Street.
We shall see. A continued rally from here would be surprising and more likely a bear market rally, but the market will tell us. We don't have to guess.
Gold continues to have a beautiful chart. I was shaken out of a position but may reenter, unfortunately at higher prices:
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