Stock Market — Ready to Turn?

For those inclined toward technical analysis for trading/investing, the following may be useful. It was sent to me by an investor friend.

The author believes that a turning point in the stock market could be near. I am a fan of technical analysis but after fundamental analysis has narrowed down the field substantially. From a fundamental analysis standpoint, I cannot see why this market has gone up and have been expecting it to go down before now. The fundamentals in the economy certainly have not improved. But, with Bernanke spraying money on everything, some things will grow despite the fundamentals. (This is also known as inflation and financial assets are often the first area where the price increases show up.)

Whether this is the time or not for a correction is anyone’s guess. For those not familiar with technical analysis, this article might be educational.

This Isn’t Trivial

One of the strategies that I have frequently written about for the SP500 involves the 40 week moving average and the composite indicator constructed from the trends in crude oil, gold, and yields on the 10 year Treasury.  When these trends are strong and rising, the SP500 faces stiff headwinds.  This is data going back to 1984 and includes the 1990′s as well.  In essence, using this indicator as a filter for a SP500 simple moving average strategy can increase returns by about 25% while reducing maximum draw down by 50% over buy and hold.  In other words, just stay out of the market or hedge yourself when the collective trends of gold, crude oil, and yields on the 10 year Treasury are strong and rising.

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