July 2nd, 2008

"Deja Vu, All Over Again"

Here we are again, delaying the ultimate washout capitulation sell-off by bouncing for the third time at the lower boundary trendline of the horizontal channel that the market’s been bouncing within since the beginning of the year. I resist calling it either a “consolidation” or a “base” formation because that would imply an ability to predict. We won’t really know which this past six months has been until a compelling move either through the upper or the lower boundary trendline. Here’s the familiar picture as of yesterday’s close:

So what should the strategy be? How do we characterize this market? The Market Timing Indicator is still a very bearish “all-cash” signal which turns bullish only when the index is able to cross above 180-day moving average which is currently, coincidentally and approximately at the upper boundary trendline, or 1391.

So here we go again with all talking heads calling yesterday’s mid-day turnaround a “bottom. I’m not convinced and would be willing give up the 8.25% rise for the index to cross the upper boundary trendline and, now, the 180-day moving average.

I’m not going to get suckered into the beaten down financials, homebuilders or airlines. I remain cautious and am not willing to stick my neck out too far until some more fundamental event changes perceptions about the issues that market has been struggling with for a year.

Subscribe below or click here to learn more about help for navigating turbulent markets.