Perhaps all that i have been reading are negative economist and bearish bloggers. Yet this post by Richard Russell is anything but bullish. However, I would not term it as bearish. You have to respect the man that managed to call one major top and one major bottom.
Why do i respect him? You ought to think that you can learn a fair bit in investing and life from a guy that have been in this for at least 50 years. A particular good read is one that is vastly circulated about some fundamentals in making money in life.
I do have my personal viewpoints on this. What he writes is from his technical and fundamental experience. Take notice of his reading of the Dow Industrial below.
When Mary Kamanu paid $409,000 for a house in Folsom, California, she never imagined that three years later it would be worth about 20 percent less and she would have to pay the bank more than $80,000 just to sell the place. "I’m completely upside-down on my mortgage, like a lot of people,” said Kamanu, who wants to move 12 miles away to live with her fiancé in a suburb of Sacramento. "I know I’m going to have to come up with a big chunk of change.”
By the end of this year as many as 15 million U.S. households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc. That may fuel an increase in foreclosures, erode prices, and increase mortgage bond losses, he said in a Feb. 1 report.
"If borrowers who are underwater go into foreclosure, the properties are likely to be sold at discount prices and will further depress the price of housing,” said Robert Engle, a Nobel laureate in economics who teaches at New York University’s Stern School of Business in Manhattan. "It becomes a spiral.”
Russell Comment — I don’t like to start these sites with this kind of negative news. But I’m doing it for a reason. Of course, the stock market knows all about the housing problems as described above. The market knew about it weeks, even months ago. The reason I posted the piece above is to demonstrate that the news of the day has little to do with investing. It’s the action of the market that has to do with investing. Or let me put it this way — it’s not the news that’s important, what’s important is the market’s REACTION to the news. OK, the news is out regarding the problems of home-owners in selling their homes. What is the market’s reaction? As far as the stock market is concerned, it’s old news and news that’s already been discounted. The market’s reaction? Nothing.
What I’m interested in is the state of the stock market itself — what’s the market doing, where does it have to go to indicate that it’s bullish or bearish, and what is its internal condition. So saying, let’s take a look at Mr. Market.
Below is a daily chart of the D-J Composite, one of my favorite market "barometers." The Composite often leads the way for the rest of the market. The D-J Composite is composed of the 30 D-J Industrials, the 20 Transports and the 15 Utilities. So far, the Composite has enjoyed a nice advance from its January 22 low of 3989.65 to yesterday’s high of 4284.60. This represented an advance of 7.3% . But now the test comes. The Composite has come up against its 50-day moving average, which stands at 4284. The next test — to break out above its preceding peak into the area around 4350.
If the Composite can advance to 4350 I’ll be really impressed. Of course, I don’t know whether it can do it. But I’ll be watching closely, because if the Composite can rally to 4350 it will achieve its first move above a preceding peak. And when the market does that — well, that’s impressive. A rise above a preceding peak tells us that the market is gaining momentum and that it has overcome a previous barrier or resistance level.
Meanwhile, RSI looks OK for the Composite as does MACD. So now it’s up to the price action.