Market Update: Big Purple Crayons

A couple weeks ago the market was in steady decline, making consistently lower lows and showing a drip drip indicative of a lack of confidence. The narrative was rife with talk of the weak dollar, expensive gasoline, banking and mortgage crises, brokerage write-downs, etc, etc. With all the negative sentiment I took out the big purple crayons and did some multi-decade technical analysis-- Eric reminds it's always a sobering idea-- warning to consider taking cover for a prolonged downtrend with the SPY trading below a declining 200-day moving average.

At the end of the blog entry on July 26th I concluded, however, that the following few trading days would be important:

I truly feel the next five days will determine the market posture for several weeks. I am an inveterate market timer and it has served me well for a number of years. The 200-day moving average cross-over has me spooked, no question, but I am not out of the market as I type this missive.

The last days of July and now early August have shown exceptional strength in the market indices. Higher lows and now a critical breakout above significant resistance at SPY $128.80. The small cap and tech indices are even stronger. This bodes well and I am fortunate that I did not pile out of the market on July 26th.



Yes, many hurdles exist to further upward movement in the stock market, but stocks are often the leading indicator out of recessions and while unemployment may continue to rise for another quarter, the market indices could continue to show strength. The added narrative is the demand destruction of oil coupled with a bottomed out dollar now gaining strength, which should bring commodity prices down at least in the short term and this will act to support stocks.

The risk in the market is still significant and bears very close observation, but I'll stay net long for now. Big purple crayons are fun to play with, but trading and investing often need a finer point.

This information is for entertainment purposes only. Anybody who takes investment advice (or any advice for that matter) from strangers on the internet needs their meds adjusted.