Don Kenobi
/ 83.5.211.* / 2009-05-21 11:41
* The stock market rally since March 9 showed rather weak volume. This is typical for a bear market rally.
* The stocks with the weakest fundamentals — the weakest balance sheets — and the highest short interest have risen the most. This is also typical bear market rally behavior.
* Most indexes in Europe and the U.S. have risen to major resistance areas. Most have touched their falling 200-day moving averages for the first time since May 2008. A falling 200-day moving average is the most reliable moving average to stop a bear market rally.
* Momentum indicators, like the Price Momentum Oscillator (PMO), my favorite, are extremely overbought. Right now they’ve rolled over and issued sell signals.
* Sentiment indicators show a huge shift since March. Bears are again a minority, both in relation to the stock market and the economy. Since sentiment indicators are contrarian indicators, this is an additional red flag for the overall bearish picture.
Stock market bears are in a minority ... a red flag for the overall bearish picture.
Stock market bears are in a minority … a red flag for the overall bearish picture.
* Many bullish analysts show analogies with former bear market bottoms to prove their bullish point. They never use the 1930s as an analogy, why? If they did, they’d have to conclude that the market was on its way to new lows … right now.
* Since March 9, the stock market rally has the look of a wedge formation, one of the most reliable chart formations. On May 13, as shown in the chart below, the price broke below the lower trend line of this wedge and did so dynamically. This was a sell signal, marking the end of the bear market rally.