Monday, December 20, 2010

Year End Look At the Stock Market

Today I'm going to look at all the markets from a variety of time perspectives to see where we are in the cycle.

First, let's remember the long view about where we are in the market. This is a three year chart with weekly candles. Starting in early 2009 the market started to rally. Notice the massive volume sell-off the occurred before the rally started, indicating a selling frenzy. The markets rallied for about a year. The this spring we had the EU crisis. Stock sold-off, but notice that prices stayed around the 50 day EMA. Then when it looked as though the EU crisis wasn't as bad as thought, prices started to rally again. Now, prices are over key resistance areas.

On the daily chart, prices have clearly broken through key resistance, and have now formed a downward sloping pennant pattern, finding support at the 10 day EMA. The EMAs are in a very bullish pattern -- all are moving higher, the shorter area above the longer and prices are above all the EMAs.

The technical indicators confirm the rally. The A/D line indicates a continuous flow of new money has been flowing into the market, although it as leveled off in December. The CMF confirms this inflow. The MACD has given a buy signal, but has been moving sideways for the last week.

The equity markets are in a rally. There is no reason to think this rally will fade, barring a fundamental hit to the economy.

I'll tackle the Treasury market, the dollar and oil later today.