Reading the tea leaves. July 17, 2009.

I would like to comment on the state of the Stock Market and use this opportunity to enclose a chart. The chart is the technical analysis of the Standard and Poor 500 (the large cap index), which is fairly representative of the broad market. So, here is the chart drawn today:

There are several features worth noting. The head and shoulders feature forecast a coming drop in stock prices and last week it seemed that we were heading lower. The S&P 500 then ran into its 200 day moving average (200DMA) and bounced upward. In technical terms this aborts the "head and shoulders" formation and its expected consequence of a drop equal to the size of the head (measured from the trend line to the top of the head).

What next?

The bouncing off of the 200DMA is a bullish sign and so is the MACD crossing the "0" level. The MACD represents the Market running ahead of its moving average, in this case, above the 50DMA. The crossing of the 50DMA above the 200DMA (known as "the golden cross") has occured in June and is, therefore still intact. In spite of the dire economic forecast, we are out of the Bear Market. Will we stay out of a new Bear Market?

A previous forecast set the YES/NO level of the S&P 500 at 930. Because time has passed the crucial daily close is now 945 that is a NO on the Bear Market and 965 as a YES on the Bull Market.

IMO, if the Senate passes the CAP & TAX bill or the OBAMACARE atrocity, we may go back into a Bear Market. But it will take time. Enjoy the Summer.