Stock Market Rally Over

By: Douglas V. Gnazzo | Wed, May 13, 2009
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Honest Money Gold & Silver Report

Stock Rally May Be Over

There are more and more signs indicating that the recent rally in the stock market may be coming to an end, at least for now. I have always maintained that this is a counter-trend rally in a bear market, and I still believe it is.

Regardless, the present rally looks to be running out of steam, whether it's a bull or a bear. Let's look at some charts.

The chart below is the NYSE - a large cross section representative of the overall stock market. It has run into overhead resistance (horizontal red line) that goes back to its January high.

Relative strength (RSI) at the top of the chart shows a negative divergence: RSI made a new high, yet the price did not confirm by making a new high - it stopped short at the Jan. high.

At the bottom of the chart it looks like the MACD indicator is getting ready to roll over and make a negative crossover.

The histograms are also receding back towards zero. The market could still move higher, but it looks like it is running out of steam and a 10% correction (at least) looks likely.

The bank stress test and all the other garbage thrown at us via the news media is just that - garbage. Remember, these are the same guys that didn't see the run-away train (financial crisis) coming; eerily reminiscent of Alan Greenspan who couldn't see a bubble if it popped in his face. Believing these guys is like listening to PT Barnum whose favorite line was: "there's a sucker born every minute and two to catch him."

Tiny Tim and Big Ben remind me of Laurel and Hardy. Throw in the other bozo and you've got the three stooges - all for the same price: all we can pay and our kids and their kids far into the future. Think about it - long and hard.

Moving on let's look at the dollar. Believe it or not - it looks like it may rally, at least for awhile, which kind of makes sense, as the dollar and the stock market have been moving inversely to one another, although there is no guarantee (never is) that this will continue. But it is what it is until it isn't.

First the daily chart of the dollar versus the S&P. As you can see - the two have been moving in opposite directions or in an inverse relation: stocks up and the dollar down and vice versa. Once again, no guarantee it will continue, but it is what it is until it isn't. For now - it is.

Next up is the dollar chart (UUP dollar index). Notice a few things on the chart: the vertical lines that connect oversold STO indicator readings with oversold CCI readings with lows on the price chart prior to rallies.

Also, RSI is showing a positive divergence: price made a new low, but RSI did not follow suit and confirm. Everyone is bearish on the dollar right now, which may mean too many people are on one side of the boat.

Lastly, let's look at commodities. I have been bullish on both and remain so intermediate to longer term. Short term I think commodities may be topping out - gold I'm not sure of - yet. Here's why via the charts.

Notice the above chart pretty much shows the opposite of the dollar chart. On the commodity chart (CRB) we see overbought STO readings lining up with highs in price.

Both RSI and STO are extended, but prices can stay overbought (irrational) longer than we can remain solvent, so caveat emptor. However, these readings have led me to book profits on several commodity stocks as of late: APC, DBA, SLV, and others.

The bottom line is that I'm not listening to PT Barnum or the other talking heads - I'd rather listen to the charts, which are saying: heads up and pay attention as the wind may be shifting.

Good luck. Good trading. Good health.

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Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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