At around the ‘80′ level our Overall Market Ratings (‘OMRs’) for the FTSE 350 and the S&P 500 clearly indicate that a new ‘bull’ market is in play. However, it must be noted that the OMRs of both these major markets are almost equally split between the Stage 1 and the Stage 2 trends. Because Stage 1 trends always tend to more volatile (than the more mature Stage 2 trend) our concern remains the ever present possibility of a sharp retracement in prices of the Stage 1 stocks.
This concern is strengthened by two facts: First, all of the major markets are now hitting their heads on overhead resistance. This may be quickly overcome but it is more likely to push prices back down, at least temporarily. Second, the volumes are low; normally this can be a positive sign (little or no selling to drive prices down) but being in the middle of a holiday period it may just be that most of the ‘bears’ are on the beach and not at their trading desks and a collapse in prices could be delayed until their return.
With the current ‘bull’ trends in play the most likely scenario we anticipate is a continuation of rising prices taking them up through the current resistance levels; this is likely to be accompanied by rampant claims in the press of recovery in stock market prices (and this will suck in even the more sanguine investor). Then the markets will go into sudden reverse and retrace back to current levels or below.
So, the message is analogous to the summer weather – enjoy the sunshine but keep your umbrella handy and don’t be banking on having too many barbeques!!
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