In an article appearing on Bloomberg’s web site, the writers discuss how many view this market rally as a "Sucker’s Rally".  Of particular importance is the following quote:

Investors are currently paying the highest prices relative to earnings since March 2004 and 15 percent more than when the S&P 500 reached its all-time high in October.

Read that quote again… at this time the market is trading on valuations that are higher than those when the market was reaching it’s highs last year. This is a fundamental disaster is the making, not only because it is too extended, but because earnings are much lower than before this mess started. Forward looking expectations? While the market is a discounting mechanism, it can also over discount on too much ‘hope’. Hope for what? Oil will drop to $50 p/barrel? 30 year mortgage rates will drop to 2%? The housing market will turn around and prices go back to where they were and continue upwards even further? Banks and other lenders will start handing out money to anyone with a heartbeat again? What if these hopes begin to fade away? The market goes right back down, and goes on to surpass the recent lows to continue downward much further.

And on the technical analysis front we have reached another line in the sand. Does it cross or does it turn back?

 

 

 

 

 

 

 

(S&P 500 - SPY - Weekly Chart)

 

 

 

 

 

 

 

 

(NYSE Composite - Weekly Chart)

 

 

 

 

 

 

 

 

(QQQQ [Nasdaq] - Weekly Chart)

 

 

 

 

 

 

 

 

(Wilshire 5000 - Weekly Chart)

 

If you believe that the economy is going to worsen, and you believe that the stock market is still in a bear market, and you believe that corporate earnings are going to continue suffering going forward, if you believe that the housing market implosion is going to continue to worsen for at least another year, and if you believe that the average American consumer is going to continue scaling back on buying ’stuff’ in order to make ends meet as inflation continues to rise… Then the market has handed you a gift, a time to ‘get out’.

This is a decision that is each individual person needs to make for themselves. If you have been holding onto long positions all through this financial mess and the building recession, then you might be facing the most ideal opportunity to take your money while you can. But, that is your own decision and one we can’t make for you. Lisa and I have worked tirelessly for many months throughout this crisis to present you the best and most objective observations of the market and economy as possible. We have no agenda, we are free to think how we want and say what we want, we are completely independent analysts and will always remain that way.

Well known and respected economists (i.e. Nouriel Roubini) say the worst is yet to come in the economy. Government officials and financial institution analysts are saying everything is getting better. Independent analysts are anywhere from the economy is going to get much worse to that of sounding like the Government and saying that all is improving.  Warren Buffet says this will be a longer and deeper recession than many are expecting. Treasury Paulson says there will be no recession.

You have to weigh what you have learned, your own beliefs and observations, and your own judgement based on data from the best computer available… the one inside your head. The media and the Government have been trying to paint a very rosy picture of the economy and the markets. Larry Kudlow of CNBC says the Dow will reach 16,000 this year. Secretary Paulson says ‘the worst is behind us’, and President Bush still says the fundamentals of the economy are strong. Take what you think and make the decision you judge appropriate for your own situation. 

And one last thing is how many more "stick saves" can the Government do in order to keep the markets propped up? And the Presidential election, will the incumbent party do everything to make Mom and Pop feel good about their money going into the election at all cost? Sure they can, but will it work and what will it do to the US economy once the election is over and the ‘goal keeper’ is gone and no longer doing ’stick saves’ .

On the charts above, you can see that there are significant resistance levels all coming together at the same time. This is a potential major turning point. Guard your money at all costs. This is not a time for placing risky trades.

For the many Apple fans out there. Here is the latest chart for Apple, and we still view this as a good risk to reward short position trade. The trend line is your stop.

 

 

 

 

 

 

 

(AAPL - Weekly Chart)

 

And finally… Where do we stand? We are still bearish long term on the market and on the economy.