Wednesday, September 9, 2009

Despite consensus that economy in ruins, traders believe 'Fierce' rally upon us

A technical analyst in Bloomberg reports:
S&P 500 Moving Averages Show ‘Fierce’ Rally: Technical Analysis
A rise in the Standard & Poor’s 500 Index’s five-month moving average above its 15-month moving average for the first time since 2003 signals stocks are in the early stages of a bull market, said Alexander Associates LLP.

The S&P 500’s five-month moving average climbed to 974.39 yesterday, higher than the 15-month moving average of 972.56, according to data compiled by Bloomberg.

The five-month moving average rose above the 15-month line three other times in the past two decades: March 1991, October 1994 and July 2003. Each cross foreshadowed returns of at least 16 percent during the following 18 months.

“Every time you see these two cross, it signifies a major event,” said Anthony Hughes, a London-based investment manager at Alexander Associates. “It confirms the shift in market sentiment.”

Might I add that the S&P500 is trading above 200 DMA, and the 200 DMA is edging up, which is bullish.

On the fundamentals front, while the bears case is clear - one should always consider the flip side, such as the 'mini bull' theory.

One has always to consider both bull and bear cases as he asses risk. IMHO, there's risk aplenty, and enough reason to be risk averse. Then again, risk aversion post Lehman catastrophe might have saved you a buck in the drop, and kept you from the recent 60% rally. It depends on the timing. I don't think people could have actually timed the recent bottom, though there were technical indicators which suggested a huge rally at end of March. I have no real advice here, and to be honest, don't take my or any other blogger's advice on what to do next. The smart thing might be to reassess your own risk parameters, goals, and time horizon, and then conclude your own judgement regarding the market's prospects and the proper mix of income/equity/cash in your portfolio.


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