|
Financial Sense Home l Market Monitor l Market WrapUp l Storm Watch l About Us l Contact Us |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
After last week's rally, and considering the chart pattern of the major indices, the percentage of price gains, the pattern of the technical indicators, and their respective readings, it appears that the major indices are in the process of repeating the same "script" from earlier in the year, following the May lows. At the same time, it seems that in addition to the equity markets, bonds, the dollar, oil, and gold are also following the same script! In fact, as of Friday's close, the current chart pattern of the major indices, the percentage of price gains, the pattern of the technical indicators, and their respective readings are almost identical to the ones we had on 5/25/05 (see chart/table below). If the SP continues to rally for another two months--as it did from 5/25/05 until 7/28/05 when the advance was aborted at 1245--which is apparently the current view among the majority of market participants, by the time it tops out around the end of December it would be in the 1280-1290 zone. Assuming that the current trends will continue in the same direction--which is far from certain--over the same time, oil will reach $80 and the yield on the 10-year treasuries will be close to 5%. Consequently we have a very interesting question to consider. If in July the $60 level for oil, and the 4.29% level for yield on the 10-year were able to put the breaks on the SP's rally at 1245, what is the merit behind investors' current conviction that the SP can continue its ascent towards the 1300 level with both the price of oil and bond yields at significantly higher levels than the ones which previously proved to be formidable obstacles to overcome by the equity markets? Does it make sense for investors to harbor such expectations based upon their most recent experience with the same set of circumstances just 3 months ago? Probably not! However, we know too well that just because something doesn't make sense, it doesn't necessarily mean it can not happen. Also keep in mind that the assumptions we are making may prove to be incorrect, oil prices may come down, and interest rates may also come down, both of which will be supportive of higher equity prices. So what is the point of the above exercise? Well, here it is: the equity market is giving a rather bullish account of itself, and if it is examined in a "vacuum" without taking into consideration its correlation to other asset classes, it is reasonable to expect the current rally to continue higher for several more weeks, especially if the energy and credit markets behave themselves. However, if all asset classes act the same way they did following the Spring lows, one ought to at least consider the possibility that higher energy prices and higher interest rates will kill the rally just like they did in mid-Summer. Bottom line: For the time being the odds favor a short-term pullback to be followed by another leg to the upside. However, if sometime during the next 10 trading days oil closes above $65, and the yield on the 10-year treasuries goes above 4.75%, there may not be another leg to the upside! READ: OPTIONS REPORT Chart
Courtesy of www.DecisionPoint.com
Ike Iossif
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Home l Broadcast l Market Monitor l Storm Watch l Sitemap l About Us l Contact Us |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
