Defying Gravity

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The following is an excerpt from the February 19, 2013 blog for Decision Point subscribers.

The market continued to defy gravity and overbought conditions, closing on a new 5-year high. I didn't find any significant headlines to pin today's rally on; it seems the bull is just indefatigable and at this point, big news isn't needed for the market to continue higher.

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STOCKS: Based upon a 12/10/2012 Thrust/Trend Model BUY signal, our current intermediate-term market posture for the S&P 500 is bullish. The Trend Model, which informs our long-term outlook, is on a BUY signal as of 12/13/2012, so our long-term posture is bullish.

The top of the rising trend channel appears to be irrelevant as a form of overhead resistance; price broke above it today and has bobbed up and down through resistance for weeks. After Friday's negative PMO crossover SELL signal, today's move was enough to turn the PMO back up and produce a new PMO BUY signal.

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The New Highs/New Lows chart shows New Highs slowly rising for the last two weeks as price continues higher. That's expected. Of interest is the defined bottom on the 10-DMA of the High-Low Differential. Bottoms tend to correspond to price bottoms. However, this bottom is coming at a time when price is not moving out of a pullback or correction. Additionally, the 10-DMA bottom is higher, i.e. the bottom is not on or below the zero line. This indicator is likely confirming the strength of the current rally.

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Conclusion: The market is headed higher without the fuel of positive big headlines. At this point, it may only be vulnerable to negative headlines. The psychologically important all-time high is about 45 points away and could be where the market finally runs into trouble.

GOLD: As of 12/6/2012 Gold is on a Trend Model NEUTRAL signal.

Price broke slightly below the declining trend channel but not significantly. Looking at the chart for the ETF, GLD, note that price hasn't broken down yet. The picture is still negative for GLD, so it could easily follow Gold and have a breakdown too.

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BONDS (TLT): As of 12/18/2012 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model NEUTRAL signal.

The PMO on TLT continues to get whipsawed and as of today it is now falling just after a recent positive crossover.  The PMO BUY signal is still intact, but could be in jeopardy if the PMO doesn't swing the other way quickly. The descending wedge has the expectation to resolve with an upside breakout, but it is hard to get on board when you look at the negative EMA configuration.

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Technical analysis is a windsock, not a crystal ball.

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About Erin Heim