Investment Capitalist

The SPX bottomed 3/6/09 at 666, and has never looked back, as the index galloped into the longest buying stampede in decades. Major indices are in the process of forming an intermediate “top” with insiders selling like mad. At the same time, many of the leading groups are breaking below their relative strength support levels. The major indices appear to be showing weakness and upside over downside volume indicators are screaming “sell.”

Most of the participants that missed the lows in early March are now looking for those winning lottery tickets that may have been neglected by careless traders. The only problem is the observant players have already made their money and have locked in their gains. The “easy money” is over.

Seasonally, we are in a bearish period, although if the bulls want to kick off a sustained, secular bull market, they have to exert a great deal of firepower to extend this rally into August. If this happens, then we’ll be in the early stages of a secular bull. With continued weakness in the US Dollar, I remain bullish on oil and gold, and neutral on bonds.

During the course of this rally, technology, retail, housing, and cyclicals all led the way up. These sectors have now broken their relative strength uptrends, which had remained intact since those March lows. The groups holding onto their relative strength uptrends, albeit with very little breathing room, are: financials, agriculture, chemicals, oil drillers, and emerging markets. I continue to favor emerging/frontier markets as well. Global stock markets have become more correlated over the past decade. Generally when the S&P 500 has risen in a secular bull market, it tends to underperform the global equity complex.

The 10-day moving average of the put/call ratio is still moving up (which is bearish for the market). But here is the chart of the daily ratio, which shows how high Friday’s reading was in comparison to the last few months.