Hi there, it's my first post on the Slope, thanks to Tim and everyone for your insights. I figured I would return the favor with a couple of my own ideas. As far as my thoughts on where we are, here are some charts that I have plotted on the SPY.
Since the beginning of August 2009, we entered a fairly predictable price channel that lost its steam at the end of January 2010 when we broke lower resistance (purple trendline). Since then, we have seen a retracement two times that, in both cases, has flirted with breaking the upper resistance trendline. Currently, we are at the second instance (the first being around Feb 3), and if prior experience holds any weight, we may bounce off that resistance in a dramatic effect (as per Feb 4).
I, for one, am in agreement that this market has been overbought and that our current "correction" has been far from such. We have also seen diminishing volume since the bounce back on Feb 5, which signals the bulls may be running out of steam.
Here are my thoughts on some fundamentals, which I believe will determine whether or not we will continue the uptrend or drop back down.
In my opinion, the market has shaken off bad news recently and pioneered new highs (versus the situation a couple weeks ago when we were dropping amidst good news/earnings). We had the news that China was tightening policy regarding their banks, which merely dropped us down to lower resistance and subsequently bounced off the same (Feb 12), only to rise to relative new highs. The second, and more important, news was that the Fed decided to raise the rate at which banks could borrow from them (Feb 18). This can only mean two things:
1) The Fed, with its unfettered access to information, has analyzed the numbers and believes that we are on the path to full recovery in every sense (bullish).
2) The banks have been rising at a disproportionate level than the other industries have been growing and need to be brought in line with them (bearish).
I am of the opinion that (2) is what is at play. This seems to correlate with Obama retracting his discourse against high bonuses at banks and such in the previous couple weeks, moving more towards a pragmatic approach from the Fed that levels out the numbers between bank profits amidst a suffering landscape. I will be looking at the upcoming numbers this week concerning consumer sentiment and housing markets as indicators for directional moves in the markets the next coming days.
Thanks for reading and good luck this week!
