May 27th, 2009

"On The Cusp" by "Threading The Needle"

I can’t explain why the market is acting the way it is and, seemingly, no one else can. The world is still falling apart but it seems the U.S. is falling apart less than other economies.

It’s getting oh so close; can you say “threading a needle?” [Be prepared, you’re going to be thrown a couple of idioms in this piece.] As far as the market is concerned, the S&P 500 is straddling the 180-day moving average, just under the traditional 200-day moving average.

I have to confess, even though the wait is upsetting in its frustration, seeing the Index hovering around both the 180-day moving average just below both the neckline creates anticipation and excitement. This phenomena is the sort of evidence chartists lock on to in their battle against Fundamentalists.

I’ve thrown in the traditional 200-day moving averages, obviously just above the 180-day and about to cross the neckline, because that’s the benchmark many large institutional investors use as their hurdle mark. When and if the Index crosses that line, I would expect to see a surge of volume as program trading buying kicks in. No one can predict when exactly that will be but many regular readers know I’ve been targeting for between July 4 and Labor Day.

Under the covers, behind the curtain or any other idiom you might want to use [I warned you], individual stocks continue to march further full-fledged bullish momentum:

Fully 80% of stocks now are above their 90-day moving averages; more than half are above their 180-day moving averages. No doubt about it, the beginning of a bull market is evident in the action of individual stocks. There were few stocks with “golden crosses” at the market low on March 9 and now over 18% have successfully put this marker on. The number of stocks with “bull crosses” (the perfect bullish alignment of each of the stock and moving averages in perfect order from high to low) is just above the number of bull crosses at the March 9 low but the number is beginning to grow.

As I wrote yesterday,

“stocks have been beaten down and are lined up like race horses in the starting gate, all waiting at the same place for the race to begin. When the starting bell rings ….. some stocks may be faster or get an earlier jump out of the gate, some may have a delayed start but most begin moving up around the same time……Individual circumstances soon begin to overwhelm market factors and some stocks begin to stumble. At some point, when the market needs to rest, to regain its energy, to consolidte, other stocks fail to regain momentum and fall far behind in the race.”

So I expect that as the number of stocks having bull crosses begin to grow, we’ll begin to see the number of stocks with 90-day moving average start to decline. I guess that’s why they say that this phase in the market’s life cycle is really the best. It doesn’t take a genius buying stocks that make money; we’re really not geniuses now. And the percentage moves up are the most rapid and greatest

It’s the next phase that we’re going to have to start filtering through a finer screen distinguishing between the stocks that have true momentum and those that were lifted due to “a rising tide” [the last one].

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