The State of the Trend

By: George Krum | Sat, Oct 8, 2011
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There has been a lot of speculation lately about whether the 10.04.11 low of the SPX is the low for this downleg, to be followed by a multi-month rally, or just marks a pause before the decline continues.

There's plenty of evidence to support both points of view, but I'll focus on two weekly charts only.

Exhibit "A" makes the case for the bull flag scenario:

While Exhibit "B" argues in favor of the bear case:

The April - October 2011 decline was identical to the October 2007 - March 2008 decline and, if history rhymes, a bigger waterfall decline is expected to follow shortly.

From my point of view, there's nothing yet to suggest that the market has changed its character. The succession of overbought/oversold market internals has produced a series of lower highs and lower lows. I'm using here the SPY as proxy for the SP500, in order to make price gaps visible. SPY will need to climb above 120 for the stair-step decline to be broken:

In addition, if we look carefully at the next two charts, we'll notice that in a strong uptrend, overbought market internals are followed by sideways/up movement:

While in the current market environment, they lead to sharp declines:

Until we see that shift happening again, it would be premature to conclude that a long-term low has been put in place.

 


PS: Thanks to all who purchased the OddsTrader app and propelled it into the top 100 paid financial apps in the US and Canada in less than a week.

 


 

George Krum

Author: George Krum

George Krum
www.citdates.blogspot.com

George Krum is the author of the "CIT Dates" blog, and the following apps available from iTunes:

OddsTrader - uses the power of Hurst Channels to produce price and time targets, and combines them with proper risk and position size management.

OT Trend - helps you quantify and forecast the seemingly random ebb and flow of stock, index or mutual fund movement.

OT Fibonacci - automates the process of applying Fibonacci numbers, ratios and time series to any security.

OT Seasonal - allows you to perform seasonal analysis on practically any security from around the world and to build long-term forecasts and models.

OT Pairs - is the first mobile app that gives users access to one of the most profitable and time tested hedge fund trading strategies.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/