Thursday, April 30, 2009

Key Price Levels: April 30, 2009

The market continues to move higher, and last week's concerns of being very overbought in a bear market have turned into this week's euphoria.  Yes, it is party like 1999!   The S&P Depository Receipts (symbol: SPY) and i-Shares Russell 2000 Index (symbol: IWM) will be closing the week above the most immediate significant pivot point or resistance level, and this is bullish.  The Power Shares QQQ Trust (symbol: QQQQ) has tagged its 200 day moving average as expected.  The Diamond Trusts (symbol: DIA) remains the laggard and has yet to close above resistance levels.

Please review the methodology and the significance of the key price levels by clicking on this link.

A weekly cart of the S&P Depository Receipts (symbol: SPY) is shown in figure 1. Last week, the SPY closed at 87.08 or 30 cents higher than our key pivot level. Despite my concerns, this has apparently turned into a bullish breakout - overbought has become more overbought.  I would expect the euphoria to linger with the 40 week moving average being tagged at some point in time.  86.78 becomes the new support.

Figure 1. SPY/ weekly

A weekly chart of the Diamond Trusts (symbol: DIA) is shown in figure 2.  The DIA is doing its best to push above resistance levels at 82.64.  A weekly close above this level, within the context of the current euphoria, would like catapult prices to the 40 week moving average.

Figure 2. DIA/ weekly

Figure 3 is a weekly chart of the Power Shares QQQ Trust (symbol: QQQQ).  The down sloping 40 week moving average has been tagged, and we are moving higher.  If bullish price action continues, then I would expect prices to get above $36.  The 40 week moving average becomes support.

Figure 3. QQQQ/ weekly

Figure 4 is a weekly chart of the i-Shares Russell 2000 Index (symbol: IWM).  My goodness don't freak out because it's a breakout.  $50 or the 500 level on the Russell 2000 would be a nice round number to stop at, but why stop there when the 40 week moving average is looming overhead?

Figure 4. IWM/ weekly

There are lots of crosscurrents.  The over bought conditions of a couple of weeks ago have given way to more overbought conditions, and some would call this a hallmark of a new bull market.  I still believe this price move will be a big head fake (i.e., bear market rally) as the structural components to launch a new bull are not in place. Anectdotally, I believe that in the end this idea that the market is all knowing and all seeing will be put to rest before we can declare the bear market over.  Personally, none of this effects anything I do as I will continue to buy fear and sell strength.  


Dacian said...

Anectdotally, I believe that in the end this idea that the market is all knowing and all seeing will be put to rest before we can declare the bear market over.

I do agree with you on the above; actually you saw many fake starts during this bear (not to speak about 1929).

Guy M. Lerner said...

I wrote that kind of quickly and what I meant is that there appears to be a big disconnect from stock prices and valuations and what is actually happening on the ground.

Let's just consider housing. It is nowhere near a turn around. It is hard to see the economy improving without this improving.

Stabilization is different than growing.

Another real data point I have is the Leading Economic Indicator data from the ECRI; this has just bottomed and gone sideways not up.

So the price action seems out of whack with the fundamentals, which according to the bulls we just don't see like the stock market does.

Guy M. Lerner said...

One other thing about the extension of this rally since last me this smacks of end of the month mark ups; I had read some where that the best time to buy at the end of the month was around the 23rd day of the calender month; this was thought to be front running the typical end of the month buying. Prices got knocked down on Monday and now we are seeing more end of the month buying.

I just thought I would put that out there