S&P 500: Waiting for Mr Market to show his hand

 EmailPrint This Post Print This Post

Last Friday was a miserably cold day in Interlaken where I was attending an investment conference. It was also a so-called 90% down-day for American stock markets (and many other bourses also recorded downward dynamics). A 90% down-day is defined as a day when downside volume equals 90% or more of the total upside plus downside volume and points lost equal 90% or more of the total points gained plus points lost. The historical record show that 90% down-days do not usually occur as a single incident on the bottom day of an important decline, but typically on a number of occasions throughout a major decline. As far as the very short term is concerned, 90% down-days are often followed by two- to seven-day bounces.

At times like these it is useful also to cast an eye on longer-term data. Focusing on monthly data for the past 12 years, the chart below shows the trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (ROC) indicator (red line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and in 2007. And 2010? With the ROC still perched above the zero line, the primary trend is still bullish, but warrants close scrutiny.

Source: StockCharts.com

Where does this leave us at this juncture? Considering an array of indicators, we are probably in a phase which could see stock market indices reverting from extended rallies to their 200-day moving averages, or in some instances ranging for a while, to work off overbought technicals and overbullish sentiment. In the meantime, I am happy to sit on cash as I wait for Mr Market to show his hand as to whether we reenter longs or play it from the short side.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

OverSeas Radio Network

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>




Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones

One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

November 2010
« Oct Dec »

Feed the Bull