Tommorrow’s Barron’s cover story has forecasts provided by 12 strategists and investment managers. I would like to highlight their S&P500 earnings forecasts for 2010.
As seen on page 28, the average of the 12 stated forecasts is $75.75.
From what I have seen, this $75 level is very common among forecasters, and as such seems like the predominant forecast for “operating earnings.”
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SPX at 1102.47 as this post is written
Here are two charts that I find notable.
The first is the daily chart of the US Dollar. I have added the 50-day moving average. As one can see, the trend seems to be “up.” This increase, if sustained, will pressure the US Dollar carry trade and that would likely have an outsized negative impact on various markets:
chart courtesy of StockCharts.com
The second daily chart is of the S&P500. The trading range from roughly mid-November until now has created a lessening of the Bollinger Bands, as shown on the chart. The width of these Bollinger Bands is seen below. As those familiar with Technical Analysis are aware, this lessening can often signal that a large directional move lies ahead in the price of the security:
chart courtesy of StockCharts.com
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SPX at 1098.94 as this post is written
The following chart shows a Weekly Log Chart of the S&P500 from 2007. I have drawn a trendline from the October 2007 highs as well as a retracement indicator from the March 2009 bottom of ~666. (Please note that the trendline and retracement both might be off by a “hair,” but this is relatively immaterial to the main message)
Chart courtesy of StockCharts.com
The trendline is significant as it represents the downtrend line from the October 2007 highs. As one can see, the current S&P500 price of 1110 is very close to that downtrend line.
As well, the current price is very close to the 50% retracement of the move from the S&P500 October 2007 high to the March 2009 low. This 50% retracement is shown in gray and is at 1121.44.
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SPX at 1109.58 as this post is written
In this post I would like to respond to a question that was raised in response to the final post (November 6) of my “Danger In The Markets?” series.
The question raised was “What would have to occur before you considered moving bullish?”
I will answer this question in the context of the general stock market (S&P500). As readers of this blog know, I have repeatedly expressed doubts as to the sustainability of this stock market rally. I continue to view it as a bear market rally, albeit a strong one. If this indeed proves to be a bear market rally, by definition it will go below the 666 March low. There are a variety of technical, fundamental, general economic, and “behavioral” characteristics of this stock market rally that cause me to draw such conclusions.
Additionally, as I have previously stated there are a lot of factors and conditions in various other markets (outside the stock market) that cause me to be very concerned. Posts explaining these concerns can be found under the “Investor” category on the right-hand side of the home page.
Another concern that I have is that, as stated in yesterday’s post, I view many asset classes as being in bubbles now. This is a very serious condition. Investing in bubbles can be extremely profitable on the way up; however, for the “long” investor they can produce huge losses if one doesn’t time the exit appropriately. While I view some bubbles as being bigger than others, if the markets enter a “general liquidation” phase like they did in 2008 and most asset classes prove to be tightly correlated, as they were in 2008’s decline, there would be widespread severe losses throughout most asset classes.
A few years ago I ran across a quote that I found most valuable. In essence, it said that the last place you want to invest is in an asset class whose bubble has popped.
To conclude, before I would change my overall stock market stance to “bullish,” I would want to see an overall market environment considerably different than that currently existent. While I can’t exactly specify the parameters of this change, because so many factors are involved, I think a change to “bullishness” will be plain to see, if not explicitly stated, in the blog posts.
One other thought…bear markets can last for years and can make many turns. Assuming we are in a bear market, the ultimate low could be years away.
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SPX at 1111.62 as this post is written
This is the last blog post (Part V of V) in this “Danger In The Markets?” blog series.
I would like to end this blog series with another look at the daily 1-year S&P500 chart. This chart depicts a Rising Wedge from the March lows. As well, I have indicated a potential H&S (Head and Shoulders) pattern in red. For those unaware, both of these patterns are bearish. I believe more in the Rising Wedge than the H&S, as it is more established. Additionally, the VIX can be found along the bottom of the chart:
Chart Courtesy of StockCharts.com
One will note that in yesterday’s post (Part IV) there was a daily S&P500 chart that showed a Rising Wedge pattern as well. The difference in appearance between that chart and the one above is that the bottom trendline is drawn differently – the chart above incorporates the early October low. Regardless, should this Rising Wedge pattern be validated through future price action, conventional Technical Analysis methods would ”measure” a resulting price far below the March low of 666.
As I have mentioned repeatedly on the blog (and these commentaries can be found under the “Stock Market” and “Investor” categories) I strongly believe the rally from the March low of 666 is a Bear Market Rally. The implications of this belief, should it prove accurate, are profound both from a financial markets perspective as well as an economic one.
As I have stated previously, I do hope that my analysis and conclusions as to where the markets and economy are heading are incorrect, and that we are on the path to true Sustainable Prosperity. However, I am firmly convinced from both an economic and markets perspective that we face an array of difficult problems in our economic future and resolving them will likely prove most vexing.
It should be noted that, as mentioned repeatedly on this blog, my views are very contrarian in nature. As such, they are quite at odds with those held by the vast majority of economic and financial professionals who are firmly convinced that we are currently experiencing a recovery with little or no risk of further economic damage…
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SPX at 1066.63 as this post is written
The charts seen in this post are from Maurice Walker, http://thechartpatterntrader.com. First, a daily 1-year chart of the S&P500. The large broadening pattern (in blue) is notable, as is the smaller one, as seen by the dotted line.
chart provided by http://thechartpatterntrader.com
Chart Courtesy of StockCharts.com
Here is a weekly chart of the S&P500. Notable here is the downtrend line (in black) from the October 2007 highs that seems to be serving as resistance. Also, the MACD and Full Stochastics seem to be reflecting weakness.
chart provided by http://thechartpatterntrader.com
Chart Courtesy of StockCharts.com
Next is a weekly chart of the QQQQ. Again, as with the S&P500 chart above, the downtrend line (in black) from the October 2007 highs that seems to be serving as resistance. Also, the MACD and Full Stochastics seem to be reflecting weakness. As well, the RSI is declining:
chart provided by http://thechartpatterntrader.com
Chart Courtesy of StockCharts.com
Now onto Part V…
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SPX at 1046.50 as this post is written
Moving on to the stock market. First, a 1-year daily chart of the S&P500. Although at first glance, the advance from the March lows doesn’t appear too suspect, two aspects are notable. One can see that currently the price has dipped below the 50 day moving average (line seen in blue -the red line is the 200 day moving average) for only the second time since the rally began in March; and second, the MACD indicator along the bottom seems at best lethargic; at worst, it is a significant divergence from the advancing price:
Chart Courtesy of StockCharts.com
Next, here is a daily chart from ~ mid ‘07 of the NYSE Summation Index. I have put in the S&P500 as an overlay in green, with the NYSE Summation Index’s MACD at the bottom of the chart. What I continue to find interesting here is the negative MACD divergence as indicated on the chart, as seen by the blue trendlines:
Chart Courtesy of StockCharts.com
Next is a 10-year daily chart of the VIX. The level of 20 (as seen by the blue horizontal line) on the VIX seems to be a good demarcation of stress. I originally made this observation on September 16, and note how the 20 level seems to have subsequently acted as support.
The VIX has been above this 20 level continuously since early September of 2008:
Chart Courtesy of StockCharts.com
Now on to Part IV…
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SPX at 1045.41 as this post is written
Before displaying some charts of the stock market, I would like to post a couple of the Japanese Yen. My comment of September 14 is relevant today:
“Additionally, is it not odd, on an “all things considered” basis, that the Japanese Yen is rising at what appears to be an increasing rate? This rise commenced in mid-2007, as seen below:”
Here is the 5-year daily chart of the Japanese Yen:
Chart Courtesy of StockCharts.com
Here is the 1-year daily chart. As one can see, there may be a Cup and Handle chart pattern forming from early 2009:
Chart Courtesy of Stockcharts.com
Now onto Part III…
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SPX at 1040.14 as this post is written
This series of blog posts represents a periodic Technical Analysis of the markets. My last series of posts (5 parts) of this nature was titled “Peril In The Markets?” and started September 13. At the conclusion of that series of posts, I wrote this blog post summarizing my thoughts:
http://www.economicgreenfield.com/2009/09/17/extreme-peril-in-the-stock-market/
Although a stock market crash did not occur in September or October, as I thought likely given the overall situation, my overall assessment of the markets (and the economic situation) is that the level of risk has increased. There continues to be an extreme degree of peril embedded in the financial markets – as well as the economy in general. In my opinion, from these price levels this peril can only be resolved via a crash of possibly extreme magnitude.
Before displaying some charts, I would like to make a couple of disclaimers. First, an extensive overview of all of my Technical Analysis observations would be very lengthy, and it would also infringe upon some facets I consider to be proprietary. As such, I will limit my observations, but I think most people will still get a clear overview of my thoughts. Second, I am aware that many people don’t believe in Technical Analysis. Even though I use Technical Analysis extensively, I will readily admit it is not infallible. As readers of this blog are aware, the majority of my focus is on fundamental aspects of the markets and the economic situation.
Now, on to Part II and some charts…
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SPX at 1036.19 as this post is written
There are several interesting facets of the markets right now. I will soon comment on some of them.
From a stock market perspective, the performance of the McClellan Oscillator is one such facet. Here is commentary from yesterday’s http://www.sentimentrader.com/ that I found very interesting:
“Remarkably, the Oscillator hit a deeply oversold reading yesterday, nearly 2 standard deviations below its 70-year average. At a current level of -73, the Oscillator is giving off one of its most oversold readings since the March bottom…even though the S&P was within 1% of a new 52-week high at one point during the session.
Since 1940, this has never happened before. The S&P was never within 1% of a new yearly high on the same day the Oscillator dipped to -70 or below.”
SPX at 1056.91 as this post is written