Monday, December 08, 2008

LT update - Dec 8, 2008

In my Last update on Oct 10,2008 i said we would break the Oct 02 lows marginally and start a bear market rally.

It's been a while since i posted my LT indicator. Just thought i will update where we are, to add a little bit perspective to many LT bottom calling that are happening on the web with little to nothing technical evidence to support their calls. There's also a lot of discussions going on as to how we are almost close to a bottom similar to 2003. Nothing is further from truth (technically speaking) as the charts speak for themselves. Look at the massive base building that occurred near the 2003 lows with some nice divergences on my LT indicator.

This indicator called the onset of bear Sep 2000, onset of bull in June 2003 and onset of bear in Jan 2008. Again this is not an IT indicator, but a LT indicator. So one is bound to miss the bottom 10-15% of the rally, if confirmation is needed from this indicator. But if one is playing the LT, why the uncontrollable anxiety of missing the bottom 15%, on what would turn out to be a multi-year rally, i ask ?

One look at the indicator says, where we are now and what is required to create LT divergences on this indicator and how long would it take to build such a long lasting bottom. Any serious technician worth his salt can make some educated guesses on that.

As for the ST, today's action took out the prior swing high on the daily charts at SPX 916. So that confirms that a minor low is in place on the daily charts. That does not mean one can go and buy the strength here, like one would have done in bull markets when the monthly, weekly, daily are all uptrending. In a bull market, if you err on the daily, the weekly trend would bail you out. If you err on the weekly, the monthly would bail you out. Currently with only the daily uptrending, if you err on the daily, you would get killed by the weekly. In other words, at this point, one has the latitude to err only on the hourly charts and get bailed out by the daily. That to me, means, wait for the next hourly oversold condition with divergences and hop in on the rally until it exhausts itself. If the next hourly oversold comes near the prior lows or below that, too bad ! :-). Looking at the NYSE MCO itself, the bulls have probably used up all their ammo already. We'll see...

As for the economy, things should only start downhill from here. The worst of the economic conditions is always past the stock market lows. This whole infrastructure spending is nothing more than another crappy measure by the government IMO. Mimicking the bygone era solutions to new age problems only shows the lack of ingenuity. Moreover, if one believes that infrastructure spending got us out the Great Depression, then yes, i would also believe that Al Gore invented the internet. The cycle needs to run it course. Until then all this government spending and bailouts is throwing good money after bad, throwing precious liquidity into inefficient goverment enterprises. Sorry, i keep forgetting, capitalism as we knew is dead.

Enjoy the rally. I will be back next year after my holidays.