US CLEARLY IN BEAR MARKET
As the credit crisis continues to unfold in rather negative fashion; many believe that the US economy will not enter into a recession, and many believe that if we do enter into a recession - that it is likely to be short-lived and shallow. We'd beg to differ as this will not be a "V" shaped recovery as most hope for, but more of the "U" variety that few fear...more long and drawn out. Demand for credit is high; availability of credit is low.
But our concern aside, the US equity markets have clearly entered into a bear market. Today, one should look at the monthly NASDAQ Composite chart to see that the defining technical indicators for the bull market off the 2002 lows have been violated. To keep it rather simple, for simple is best - rising trendline support of the rising wedge was violated. We all know from Technical Analysis 101 that monthly trendline breakdowns carry more weight. Also, the major trend defining 25-month moving average was violated - which in tandem with the trendline violation - argues strongly for sharply lower prices.
Therefore, rallies are to be sold, which given current prices are only but 161 points below the 25-month moving average - suggests this bear market is about to accelerate. And, we won't see it end until the current complacent 'public' hits the much vaunted "puke point." Where that point is will be debated for a number of months; but perhaps the 50%-62% retracement zone at 1844-2066 will offer at least an initial bottoming target prior to what is likely a sharp short covering rally. For now, all that really matters is that the trend lower; and as such...we are sellers of Technology, Consumer Discretionary and Retail shares.
- Richard Rhodes
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