June 26th, 2007
It’s not surprising that the market would be hesitating at this point. It has reached a major milestone. As measured by the S&P 500, the market at 1540.56 during the week of June 1 was just 10 points above it’s previous all-time high reached in the week of September 5, 2000 of 1530.09. That’s no mean accomplishment. It took nearly 7 years to regain all that had been lost when the tech bubble burst.
Any stock chartist can paint an amazing picture by drawing a perfectly horizontal resistance trend line across the expanse of seven years from that old high to the current level:
The second dark, upward-sloping trendline in this graph is the line that supported the S&P500 since 1984 (it touched the line several times between 1984 and 2002 but never went below it until the correction in 2002) . It remains below it today, too.
A hesitation at this point is to be expected. And a major correction of approximately 10% which would carry the index to 1380, the previous low made during this year’s February-March correction, is possible but not yet a foregone conclusion.
Many talking heads say that a 10% correction is necessary before an assault on new highs can be tempted, before the index can cross back over its long-term (back to 1984) supporting trendline.
There are many stocks (my watch list includes around 300) that look just like the S&P 500 index. They’re sitting at the “precipice”, waiting to breakthrough to the other side, to all-time new highs.
There’s a group that’s been a laggard in this bull market that’s raged since the bottom was hit on March 11, 2003 (I remember the day well since it was also a milestone birthday for me). Perhaps, being the romantic that I am, I believe it would be poetic justice that the industry that caused all the pain during 2000-2002, the tech stocks, be the group that leads the assault to new heights.
I’m not sure when but I, along with you, hope that it will be relatively painless between now and then and, if any correction is forthcoming, it will be short.