Special Technical Report
Originally published February 24, 2008
Page 1
The S&P500 (top chart) rebounded well off the January 22 low of
1310.50 , making a fairly strident gain up to 1395.42 as of February 1.
Nonetheless from here things have become more uncertain. The index traveled back down to as low as 1326.45 on the 6th and has contracted into a tight range in the last few weeks. Though a rather small formation on the daily level, the chart does show a distinct contracting wedge pattern. The fact that the bottom is rising so sharply tends to make it somewhat more bearish according to chart theorists.
Nonetheless our solid sentiment readings suggest a break to the upside is more probable.
In any event, it wonʼt take much longer to find out which way it intends to move as it should break out of here in the next few days.
The NYSE Bullish Percentage Index (middle chart) continues to bounce off extreme lows, having descended to only 15.91 on January 22. Such a low value is extremely rare and in the last 15 years has always presaged a medium term rebound. January 22 marked many other extremes in breadth indicators as we discussed in the last issue. All of this tends to
suggest a rebound of some kind. Nonetheless some of the expected rise has already occurred. Though we would normally expect more of a recovery based on the extreme low breadth, there is no guarantee weʼll see it. In the last three months the market has been somewhat stingy with gains even while weʼve had a number of underlying positives.
Gold (bottom chart) continues to do extremely well. This is not surprising as it is following a general inflationary trend in a wide range of tangibles, including silver, crude oil, cotton, wheat, soybeans, sugar even live cattle and copper seem to be doing fairly well at this point, though theyʼve had a choppier go of it. Of course trends do not last forever and eventually we will see a reversal. For now weʼll stay the course and retain our 15% allocation to gold in the conservative portfolio.
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