Friday, July 30, 2010

The Gerritz Letter

The August 1, 2010 issue of The Gerritz Letter has been published. It should be in your email inbox now. If you do not see it, check your junk or spam mail folder and mark it as not junk mail.

If you want to have a copy of The Gerritz Letter delivered to your email inbox monthly click on the link below. It is provided at no charge.

Sunday, July 25, 2010

Market Breakout or Fakeout

Since the middle of May the market has been in a sideways trading range with a downside bias. The bulls are now gaining an upper hand in the bear / bull battle.

The stock market is poised to rally for the short term. While short term the market has turned positive, the intermediate term is still bearish. A tradable rally may be at hand, but volatility is high and the sustainability of a potential market advance remains in question.

I am cautiously optimistic.

Thursday, July 22, 2010

Market Comment 07 22 10

The market was up nearly 2% on Thursday. Breadth was 90% to the upside. Good earnings reports from a number of companies appeared to have been the catalyst.

The S&P 500 broke above it's trendline (T1) decisively. Furthermore, it closed above it's 50 day moving average after many failed attempts. In the daily chart we now have established a higher low, the first step of a potential market reversal to the upside.

Key resistance is at 1100 (R1). A break above resistance would force the bears to cover their short positions, and in the process their forced buying would propel the market higher. A further push above 1130 would give a very strong indication that the bear has been beaten back.

Wednesday, July 21, 2010

S&P 500 Turns Back at the 50-Day Moving Average Again

Wednesday, July 21, 2010 at 02:21PM

For the fourth time since the 'flash crash' in early May, the S&P 500 has tried and failed to rally significantly above its 50-day moving average. First, it was debt concerns out of Europe (5/13). Then it was the negative reversal following China's statement to let the Yuan appreciate (6/21). Then it was weak earnings reports from the Financials and a weak Michigan Confidence report (7/16). Today, it was Bernanke's testimony that preceded the sell-off. Bulls had been hoping that strong earnings would be the catalyst to take the S&P 500 to the other side of its 50-day, but so far the bears (and Bernanke) are having none of it.

Source: Bespoke Financial

Tuesday, July 20, 2010

Market Comment 07 19 10

2nd quarter earnings and the outlook for IBM disappointed the street. Futures are pointing to a lower open for the market.

SPY (ETF for S&P 500 Index) will likely retest the late June and early July lows again.

We continue to avoid exposure to stocks in favor of bonds.

Friday, July 16, 2010

Market Comment 07 16 10

The Stock market remains in intermediate downtrend.  I expect the volatility to continue with the flow of news, both good and bad. Today's market slump was attributed to a decline in the Michigan Consumer Sentiment Index. Consumer confidence has been waning since the first of the year.

Our income / bond funds continue to perform well. Futhermore, our model portfolios have no exposure to stocks currently.

Bear Market Rules are in place. Share prices are below both the 50 and 200 day moving averages.

Tuesday, July 13, 2010

Market Comment 07 13 10

The market is rising, but on very low volume. Additionally, both share price and the 50 day moving average is below the 200 day MA. This is the definition of longer term down trend.

Declining volume suggests a lack of the type of enthusiastic buying that is necessary to sustain a major uptrend. The futures market indicated a strong open on Wall Street Tuesday morning, but unless volume increases, I think we should remain a little skeptical about this advance in stocks.

Fortunately, the low-volatility bond/debt/income funds we own are trending up as well..

Monday, July 12, 2010

Market Comment 07 12 10

Companies begin reporting their quarterly earnings this week, starting off with Alcoa.  While earning will be important, market participants are really looking toward the guidance offered by industry leaders. The earnings outllook will influence the markets.

Last week's strong bounce was loosing strength as indicated by following chart of the Dow Jones Industrial Average.

Thursday, July 8, 2010

Market Comment 07 08 10

Wednesday’s short covering rally was strong.  Short covering rallies tend to be very strong, but short lived, unless there is follow-through buying  to keep it alive.  The market is still in an intermediate downtrend. At this point we have no way of knowing if the current rally will be sustained. Downtrends are made up of a series of strong down-legs interrupted by weaker up-legs.  Uptrends are made up of a series of strong up-legs interrupted by weaker down-legs. It is the shift in the relationship between up-legs and down-legs that alerts us to the possibility of a true reversal in the intermediate trend.

Wednesday, July 7, 2010

Market Comment 07 07 10

We finally got the bounce we were waiting for.  It was larger than anticipated, especially given the head and shoulders pattern that had been completed.  With the neckline resistance of the H&S pattern being violated with such authority, we may now be in rally mode for the short term.

The intermediate trend still is bearish. The bulls and bears now have a big fight brewing, so a high level of volatility should be expected.

S&P 500 Sector Performance

Financials in Bear Market

Tuesday, July 6, 2010 at 03:09PM

At its current level, the S&P 500 Financials sector has entered a new bear market (a 20% decline that was preceded by a rally of at least 20%). Below we highlight performance over various time periods for the S&P 500 and its ten sectors. As shown, Materials, Energy, Industrials, and Consumer Discretionary are all also dangerously close to bear market levels. The S&P 500 is down 15.73% from its bull market high. Unsurprisingly, it's the defensive sectors that have held up the best since the market peaked on April 23rd, if declines of 9% to 14% can be charecterized as holding up.

If we go back to the date of the S&P 500's all-time high on October 9th, 2007, the index is down 34.46%. The Financial sector has been by far the worst since then with a decline of 62.09%, even though it has recovered by 118% since March 9th, 2009. The Consumer Staples sector is down the least since 10/9/07 at -9.46%. Since the March 2009 lows, the S&P 500 is now up just 51.62%, off from +79.92% on April 23rd. Only Telecom has done worse than the Energy sector since the March 2009 lows.

Source - Bespoke Financial

Saturday, July 3, 2010

Is a Bear Market in Equities Looming?

A case for another bear market in stocks is developing. I discussed the significance of the 200 day moving average in the July issue of the Gerritz Letter. The 200 DMA is just beginning to slope downward. The 50 DMA is just crossing the 200 DMA to the downside; this is another bad omen which is sometimes referred to as "The Death Cross."   Finally, a classically bearish chart formation referred to as a head and shoulders pattern has developed in multiple equity markets.

In the following chart of the S&P 500 I highlight the head and shoulders pattern. The HS pattern is said to be completed when the market closes below the neckline support and Thursday's low made the breakdown decisive.

If I read the tea leaves correctly, the minimum downside target for the S&P 500 is about 860, which happens to coincide with the support line drawn from the correction lows of July 2009.

(Click on chart to enlarge it for easier viewing)

I am expecting an oversold rally to begin shortly that would take the market up to the top of the current down channel. If that rally stalls and the market turns down once again we will have a complete series of lower highs and lower lows, the definition of a downtrend.
This confirmed downtrend would be an all clear signal to either short the market or buy inverse ETFs.
All but the most agressive portfolios are currently positioned in safe haven bond / income funds and have zero exposure to equities at the moment.
I will be looking to buy inverse ETF's for moderate and agressive portfolios should and when the next rally fails.

Thursday, July 1, 2010

The Gerritz Letter

The July 1, 2010 issue of The Gerritz Letter has been published. It should be in your email inbox now. If you do not see it, check your junk or spam mail folder and mark it as not junk mail.

If you want to have a copy of The Gerritz Letter delivered to your email inbox monthly click on the link below. It is provided at no charge.

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