A number of markets continued to chug higher this past week with the S&P finally claiming the 1500 level and closing slightly above for the first time since late 2007.
In my Ramblings of 16th July last year I drew attention to the fact that strategists in New York were recommending their lowest allocation to stocks than at any other time in the previous fifteen years and at the same time their highest allocation to bonds. They actually went on to be even more pessimistic on stocks than any other time since the records had been kept. At the time I believed that ultimately the money that was running into bonds would start to return to the stock market. I think this is what has been happening over recent months with a strong rise in stocks and an accompanying decline in U.S. bond prices. However, both are approaching extremes this week. I still think that after a correction, we will see a continuation of this trend – money coming out of bonds and into stocks.
The percentage of stocks in the SPX that are above their fifty day moving average is way up there with the best of them. That chart is probably the most worrying of all that I have looked at over the weekend. I admit that sometimes it can hang around these nose-bleed levels for more than a few days but ultimately gravity takes over and it comes back to more sedate levels. However to be fair, there have been times when such a high level has had bullish longer term connotations. But in EVERY case there has been a market correction first.
The Genius Index was above 80% again.
But there is an advantage in this correction being pushed out – it means that the peak I was anticipating in the March/April period is also being pushed out to April/May – perhaps even later than May. Then we could have a REALLY important low out in that popular month for lows – October. Could it be another “sell in May and go away” year?
AAPL has been in the news. I mentioned last week that rather than a down-sloping wedge that everyone was predicting (hoping probably more like it) I felt it was in the final stages of a head and shoulders top pattern. The bears certainly won out with the price being crushed fairly cruelly. Left a HUGE gap which I suspect may be visited again. The next support level for Apple is under $400 where I would like to have another think about its trend. At this stage it is going down in exactly the same manner that it went up. Just amazing how many times we have seen markets follow this pattern.
BHP’s performance has been letting the side down lately. I am not at all happy with the pattern it has formed in New York trading. With the currency adjustment, the same pattern doesn’t show up as clearly in our market but I wouldn’t be at all surprised if BHP doesn’t ultimately go hunting for the gap around $35. It loves to fill gaps.
Ten weeks of advances now in our Banking Index. Not sure if that is a record but must be close.
Currencies are such a mixed bag. Last week it looked like the US Dollar was trying to rally but after another week we see that the Euro is stronger (usually good for stocks) but the pound is weaker and we all know that the Yen has been absolutely crunched. At the same time the Canadian Dollar is weaker and the little Aussie Battler has rolled over slightly. Need to watch all of these this coming week as I suspect the signals for the overall markets will come from the currencies.
My next timing box comes in around 8th February but then it is an absolute mess of dates out to early April. Might mean a bit more volatility in the market or perhaps a decline through that period. Possibility a bit of both – a declining volatile market!
The fall in gold and silver dominated commodities this past week. Mentioned previously that I was disappointed that gold was stopped at its first resistance area around 1700. Silver has been leading recently and before this latest decline had actually put in seven consecutive days of rises. That was quite impressive and increases the probabilities of finding support down here. This price range in gold is roughly the mid-point of all trading over the last eighteen months.
Away from my office again so next Ramblings won’t be until 18th February.
(20min delay)