Market Update

Market Commentary:

The Nasdaq Composite led the market today as investors bet that such bellwethers as Microsoft may be among the first sectors to see a recovery in demand.

As we are all aware, the stock market anticipates change as investors bet on the future. As a result, the stock market is considered to be a leading indicator of future economic change.

As we have seen in this bear market and others before this one, the stock market can fool us into thinking we are at the beginning of a new bull market, only to trap investors with painful consequences for jumping too early.

However, the difference between a bear market rally and a new bull market is sustainability. After the short covering ends are institutional buyers moving in money into the market on a sustainable basis.

What has been lacking is visibility. The intentional Fed obfuscation, hiding the truth, manipulation and misguidance, only creates an environment of mistrust.

In the movie, “A Few Good Men,” a memorable quote was the line where Lt. Daniel Kaffee demands “I want the truth!” “You can’t handle the truth!” was the reply by Col. Jessep.

Is this what the Fed is telling us? We can’t handle the truth.

The truth is we don’t know the truth. The Fed’s manipulations by changing the Mark to the Market rules, changing the uptick rules are all games to hide the truth and to get us to believe what they want us to believe. This seems like an attempt to push the market higher and have everyone believe that the Bear Market is over. It is NOT over ... I'll repeat that, it is not over.

It is crucial we have a plan in place to protect capital because unless the Federal Reserve and the government can deliver on a true recovery in the next six months, the psychological anger will prove to be exceptionally brutal on the next down leg.

Bear market rallies, or countercyclical rallies are retracements against the primary trend. The domain of bear market rallies lie within the intermediate-term cycles.

The last bear market rally lasted from November 21st to January 6th or about six weeks. We saw a six week bear market rally from July 16th of 2008 to August 29th. The one before that was from March 17th to May 19th.

Each of these rallies was talked up as having made “the” bottom only to catch investors with the surprise of a lower low.

I would like to point your attention to the weekly chart of the S&P 500 benchmark.

As we talked about last week, we remain within a left translation of lower lows and lower highs between each intermediate-term cycle, which can be seen on the MACD, stochastic and RSI values.

Next week marks the sixth week of this intermediate-term up cycle. Notice the MACD oscillator, which is the oscillator at the top of the chart. The MACD is well below zero. If you just stayed out of the market when the MACD is trending below zero, you would have missed the worst part of this bear market.

The price of the S&P 500 is at the weekly middle Bollinger Band line, which is natural intermediate-term resistance and we are now moving into overbought territory with %K at 87 and %D at 68. Next week the stochastics will reach into the %K 90 percent level suggesting the risk of the next intermediate-term down leg is nearby.

Notice the 14-week RSI value at 43%. Here again, if you would have stayed out of the market as long as this RSI trends below 50%, you would have protected yourself against the damage in this bear market.

Notice in this chart the OTC made a bottom in the McClellan Summation Index in October and now here in April it is at the top of the range.

The strongest period for the stock market is from October to April in most years. This chart suggests the market is nearing a seasonal high ahead of MAY! We are still below zero on the OTC McClellan Oscillator.

Now look at the NYSE McClellan Oscillator. This isn’t exactly inspiring.

We could see another jerk back up, but as we have seen before, sooner or later this oscillator swings back down to the -60 to -100 range.

Lastly, I want to look at the New Low/New High differential against a 10-day moving average for the OTC.

What this chart shows is that the differential is flat against its 10-day moving average. Breadth has improved significantly but it just hasn’t crossed this critical threshold yet. It is close but not quite there. We are neutral on this chart.

I see no point in recommending investors jump into the market given the readings of these charts.

Remain defensive.

If we take a look at the chart of S&P below. You can see we are still in a down trending channel and with our current multi-week rally, price has only gotten up to the top of this channel. So if you want to take a jab at the market, I would be shorting it here.