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Realtraders,
I just thought I would post some thoughts regarding the S&P. Attached is
a 60 min chart of the Dec S&P Futures (SPZ8). After a phenomenal run from
the October 8th lows, this market appears to be getting tired...most of you
are probably saying, "that's obvious", but at least here is a chart to help
confirm 'the obvious'.
Simply, take a look at the RSI oscillator that has been showing the
presence of a divergent pattern for the last 2 weeks. Further, with the
most recent price action, one can clearly see that the oscillator is having
extreme difficulties as prices continue to move higher. Typically, when we
see such divergent patterns that correspond to several weeks of price
action, one can usually expect a reversal in prices. In this case, the RSI
made a high on Oct 16th. As prices continued to move higher, it was NOT
confirmed by the oscillator during the period Nov 2-6. Hence, the market
had a 'small' pullback from 1150 to 1120. Then prices once again moved
higher. Making a new high, which was AGAIN unconfirmed by the RSI (this
can be seen by the RSI highs of Nov 17th). Finally, today we again moved
higher in prices but the RSI is having trouble getting above the Nov 17th
high, let alone the Oct 16th high (see the downward sloping trendline on
the oscillator).
Thus, using this KISS (keep it simple stupid) method of analysis, IT
LOOKS TIRED! As most of us know, this rally in the US stock market has
been driven primarily by the technology and Internet stocks (not to mention
some financials, healthcare, biotech etc). As of the close of today's
action (11/19/98), many of those Internet stocks reversed late in the day.
For example: YHOO traded up to 198 today but closed down 4 to 186. AMZN
hit a new high of 175 and then closed down 11 to 153. NSCP hit a new high
of 45 but closed at 36.50 and AOL hit a new high at 90 but closed back at
83.63.
These are just a few examples, but if it is any indication of investors
becoming tired of paying ridiculous prices for some of these 'high valued,
speculative stocks', day after day, then maybe they will become a little
more cautious and look to take profits after many of these stocks gained
well over 50 or 100% in the last month.
Personally, I bought many of these stock back in early October but
already sold them into their rally several weeks ago. Now I am just
looking of an opportunity to buy them back but at least 25% lower from
their recent highs.
Finally, my 'opinions' on the resulting decline indicate that the bull
market is again in motion. As such, this projected decline should be
minimal, with the SPZ8 pulling back into a zone around 1070 to 1110 or
approximately 500 points on the Dow. At which point, I will try to be 100%
invested in the market with an upside target of Dow 10000 during the first
quarter of '99.
Thoughtfully,
John Boggio
PS. Just to clarify, I am not trying to call a top today, but I am
suggesting that a pullback may begin in the next few trading days.
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