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Buy Signal Confirmed
by Carl Swenlin
April 9, 2009
Last week I pointed out that the market was beginning to show the signs of a bullish undercurrent. Specifically, short-term overbought conditions were being cleared by small corrections or small pauses in the up trend. This week the bullish undercurrent persisted and may even be strengthening. Thursday's strong rally on expanding volume certainly suggests that this is so.
On March 17 our primary mechanical model for the S&P 500 Index generated a new buy signal. At one point I emphasized that the buy signal should be viewed as short-term until further confirmation materialized. On Thursday confirmation occurred when the S&P 500 20-EMA crossed up through the 50-EMA, so now we can assume that the buy signal applies to the medium term, and that the rally is likely to extend for several more weeks. At this point a sharp price reversal can quickly reverse the EMA crossover, but the odds favor positive outcomes.
There will be some concern that medium-term indicators, such as those in the chart below, are becoming overbought and could be warning of a price top close at hand. Since the market is now officially bullish for the medium term, I don't think we should worry when medium-term indicators become overbought. Such conditions can be relieved even as prices move higher.
Many will be assuming that this is the beginning of a new bull market, but it is too early to make such an assumption. The S&P 500 50-EMA is still well below the 200-EMA, so we are still in a bear market. The most optimistic we can be about the current rally is that it is a bear market rally.
Bottom Line: The market continues to behave in a bullish way, and a short-term buy signal has been upgraded to a medium-term buy signal. It is possible that it is the beginning of a new bull market, but the technical evidence says that this is only a bear market rally.
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2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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