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Monday, August 15, 2011

Market Thought... structure

Before I go into my thought, first things first, I had my last day at Pfizer on August 12th. I now consider myself to be a full time trader. (If I had to give myself a title it would be "chief market psychologist" :)  Over the next few days I'll be finishing up my office, and hopefully make progress on the 'investment pool' partnership.

Without a European debt induced credit freeze the market decline will evaporate sooner-rather-than-later as economic data and company results prove the global economy is churning.  There is a ton of technical damage that needs to be repaired.  Slowly, the repair is taking place.

The negative momentum on the SP500 guided by the 5SMA was broken on Friday.  Also, the spike in the VIX via the VIX-SP500 (as the vix touches the high of the market rally) overlay suggests a market bottom may have been achieved.

The chart above is from one leg of the rally. However, a bottom is further suggested when looking at the VIX spike from the start of the rally (March 2009).

I believe we will start seeing a shift in negative chatter once the SP500 breaches the 360SMA, as the SP500 will regain its structural trend. (There is a higher probability that the SP500 sees resistance near the 1200-1220 level, then breaches.)

There is no big mystery that the emerging markets have been tightening over the past few months due to inflation concerns.  The tightening has caused the markets to go nowhere in 8-9months, and consolidate the last two quarters. (The tightening has now eased, and easing, Australia being the most recent example.) But has the tightening been so severe that the global economy will be in a recession? This interview with CAT's CEO does not suggest it.

Nor do other statements from other companies.

The market decline has been so severe, that it has already discounted far more than a global recession.  And the chatter over this weekend (that Italy is doing more to get their house in order and the speculation that Germany is easing to the concept of the 'euro bond' idea) may suggest Europe is finally getting serious about squashing their debt issues.

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