Friday, May 8, 2009

The Bank Index: The Single Most Important Index

Figure 1 is a weekly chart of the S&P Banking Index (symbol: $BIX.X).

Figure 1. $BIX.X/ weekly

The red dots on the price chart are my key pivot points, and these identify support and resistance levels. This figure is a snapshot of the bear market.

In essence, the current bounce off the March 9 lows is no different than the prior 3 bounces before it as prices have only retraced back into key resistance levels or the prior breakdown point. If the market is going higher, than the S&P Banking Index will need to close above resistance at 126.80 and the down sloping 40 week moving average. This will not be an easy task.

As I try to figure out if this bear market rally will morph into a new bull market, I should probably remind myself everyday that I only need to look at this one chart to get my answer. For now, this current rally is looking no different than the preceding bear market rallies - built on lots of hope and built on lots of well timed announcements from the government.

7 comments:

Bill said...

I don't use TradeStation so I'm not familiar with the pivot point calculation used. Could you please explain how a pivot point is calculated?

Thanks

Guy M. Lerner said...

The pivot point is 3 bars on either side of the pivot; these are not the same as the daytrader's floor pivot points, which I think you the previous day's high and lows

Διώνυσος said...

I don't feel terribly comforted by your arguments in that the trend is definitely upwards and possibly accelarating upwards and your downtrending channel is not going to sustain the upward pressure on yields with huge expansion in money supply worldwide. It will soon be 3.43, then 3.5 then 4 then 5 and when it reaches 6 the DOW will be heading to 1000 . Inflation of 16% is what drove the pound into freefall out of the ERM and crippled the UK economy. I am not looking forward to hyperinflation !

Guy M. Lerner said...

Aiwvuooc:

I am not sure which trends you are referring to but let me clarify: 1) the secular trend of higher yields will be confirmed on a monthly close over 3.43% on the 10 year---this is my interpretation of it; the critical word is "my" which is done by "my" methodology; the markets will likely do whatever they want and more than likely "my" tools will pick up those changes. My point of the bond article was to re-state what I have been saying for 6 months: yields are going higher. But hold on, there is a little more work to be done yet (i.e., get out of the down trend channel on the weekly chart).

There is no question that stocks are in an up trend, but honestly, on a monthly chart it just looks like a "v" shaped bounce. So we shall see. I have been pretty clear about expressing that this is not a launching pad to a new bull market, and I have given you an idea when I would throw in the towel.

As far as inflation, trends in inflation typically have been a headwind for stocks; that is when we measure the trends in gold, yields, and oil and when these are rising, stocks do not do well. I will present this data later in the week.

Anonymous said...

BIX has closed above at 126.87, slightly above 126.8 that you mention.

So what now? The market has turned bullish?

Guy M. Lerner said...

Anonymous:

Thank you for pointing this out! Personally, I view this as one important data point. I believe I summarized my thoughts well and how I would play with the bulls in the article, "Bear Market Rally Or New Bull?"

If this is how things develop - bullishly - then I hope the index will be above the pivot point.

Guy M. Lerner said...

Anonymous:

Two more things: 1)prices have yet to close above the 40 week moving average as well; 2) I sense a bit of sarcasm in your comments as in "So what now?". If you expect market analysis to be written in stone and iron clad guaranteed, then you will be sorely dissappointed. It is more about defining your edge and knowing when that edge is wrong.

I would suggest looking at the two equity curves shown in the most recent commentary and ask yourself: "why does this dynamic exist". This may be a bull market after all, but to me that doesn't really matter. I had a plan 10 weeks ago; and I have a plan for the next 10 weeks.