Stock Market and Currency Update 28 March 2010

Update as of market close Friday, 26 March 2010.

Another week of solid gains on the market. All technicals are bullish and the mid to long term outlook continues to look bullish.

See notes below (Click on all charts to enlarge):


SPX 10 year monthly:



The monthly long term chart turned bullish in July, 2009 when the monthly closing price exceeded the 12 month simple moving average.

At the close of March price will remain above the 12 mSMA (currently @ 1030.69).

The long term view is BULLISH.


SPX 3 year weekly:



The weekly chart remains bullish. The 13 week exponential moving average (13 EMA) remains above the 34 week exponential moving average (34 EMA).

The technical indicators turned bearish in late Jan (as shown on the chart with the red vertical line) so I was on guard for a possible trend reversal. However, that downtrend did not materialize and price found support near 1050 before it began it's next rise. The technicals turned bullish again in late Feb.

Price looks like it wants to challenge the 1200 level, which is a level of volumetric resistance. Above that the next target is the 61.8% Fibonacci level @ 1228.74. A break above there and there is a VERY good chance we go on to test the last highs @ 1576. A bit early to be that optimistic but I have that on my radar.

The intermediate term view remains BULLISH.


SPX Point and Figure (traditional):



The PNF chart remains BULLISH and has a price target of 1295.


SPX daily with volumetric:



The market correction in Jan/Feb bottomed at 1044 and created a nice symmetrical rising channel with the top rail. Price is currently positioned midway within this up channel.

Price is currently right at volumetric resistance @ 1170'ish so this is a place where short term weakness would be expected. A significant rise above this level would be exceedingly bullish.

Should a short term correction develop, there is nice support near the 1120 level formed by the previous price support and the uptrend line. A break of this level would be exceedingly bearish.


SPX 6 month daily:



The 6 month daily chart shows a nice uptrend channel from the 1044 bottom. The slope of this channel is extreme and cannot last (in fact, I am amazed it has lasted as long as it has).

The technical indicators are positive but dangerously overbought. As such, this market short term is in need of a correction.

The 1st sign of trouble would be a break of 1150. The 50 day moving average is currently @ 1118 and rising. This, along with the support near the 1120 level, would be a natural target in the event this market begins to decline.

The short term chart is BULLISH but DANGEROUSLY OVERBOUGHT.


McClellan Oscillator NYSE:



Of the many, many, many charts I monitor, some of the most important have nothing to do with market price action. They have to do with the "internal breadth" of the market.

When prices are rising and the internals of the market (volume, % of stocks making new highs, % of stocks > 200/50 day moving averages, etc) are all in alignment, then you are dealing with a "healthy" market. When the internals begin to break down, you are dealing with an "unhealthy" market.

The McClellan Oscillator is a measure of internal market breadth.

For those who are interested:

Wikipedia:

The McClellan Oscillator is a market breadth indicator used by financial analysts of the New York Stock Exchange to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market.[

Developed by Sherman and Marian McClellan in 1969, the Oscillator is computed using the exponential moving average (EMA) of the daily ordinal difference of advancing issues (stocks which gained in value) from declining issues (stocks which fell in value) over 39 trading day and 19 trading day periods.

The simplified formula for determining the Oscillator is:

Oscillator = (19 − day EMA of Advances minus Declines) − (39 −day EMA of Advances minus Declines)

The McClellan Summation Index (MSI) is calculated by adding each day's McClellan Oscillator to the previous day's Summation Index.

By using the Summation Index of the McClellan Oscillator, you can judge the markets overall bullishness or bearishness.

MSI properties

above zero it is considered to be bullish (positive growth)
below zero it is considered to be bearish (negative growth)
The Summation Index is oversold at -1000 to -1250 or overbought at 1000 to 1250.

Note in the chart above that the McClellan Oscillator topped the 1st week of March and has been on decline since. Price has continued to advance so when this divergence began we entered the "unhealthy" market phase.

A similar set up occurred in early Jan as noted on the chart. It appears we are setting up for a similar conclusion.

The short term looks dangerous.


Shanghai 2 year daily:



I am monitoring the Shanghai index closely. It was the 1st major index to lead us out of the last major decline/bear market so it is key to watch it for clues as to what might to expect.

This index is not looking nearly as bullish as the U.S. indexes. Price has formed a symmetrical triangle and could break either way. A troubling note is the 50 day moving average has just crossed BELOW the 200 day moving average. This is known in technical analysis as the "death cross" and needs to be watched very closely. A break downwards out of the triangle might be the 1st indication the party is over.


Euro 6 month daily:



I have not bothered to update other currencies today because only 1 matters right now; the Euro. Since it's top in early Dec, 2009 it has declined a little over 12%.

Price has set up what appears to be a nice down sloping channel. It appears a 5 wave pattern has formed and the 5th wave has begun (as shown with the red lines on the chart).

Price projection points to a target of 128.65 for the Euro to complete this pattern; a further decline of approx 4% from current levels. A break of 137.82 would negate the pattern.



Bottom Line:

My comments from my last update remain unchanged:

Overall the markets continue to look positive. The monthly and weekly charts are bullish and the daily chart is also bullish (but overbought). I never buy into an overbought market.

I remain long term bullish on the markets but cannot buy at these overbought levels. I continue to wait for a decent pullback to commit new capital to the provident fund account.

There are no signs (as of today) that a significant decline is forthcoming. However, I am still of the opinion we will have a top some time this spring/early summer followed by a SIGNIFICANT DECLINE into the fall. I expect a bottom to occur sometime in Sept/Oct with a huge rally to follow. I do not expect I will achieve 100% investment in the Provident Fund until then (unless significant resistance levels are exceeded).

As of today my strategic positioning within the Emirates Provident Fund A and B accounts remains unchanged at a 50% Equity/50% USD cash position.**

The ECAM Asset Allocation Fund is currently 70% invested (60% core holdings invested + 10% discretionary invested) and 30% cash. It has been another great month (and quarter) for the fund. I will blog those charts along with the fund's monthly and quarterly performance statistics at the end of March.


**Strategic allocated percentages are as per how funds were originally allotted. Due to daily market fluctuations and ongoing equity monthly purchases within the accounts these amounts will vary several percent from that posted.

Current positions as of 28 March 2010:

-Equities: 59.2%

-USD Cash: 40.8%


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