A Weak New Bull Market

rader Talk

The short term momentum oscillators remain positive, confirming the bullish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains positive, with zero distribution days since the new buy was issued. The leadership profile remains negative, with Friday's close yielding 59 stocks making new 52 week highs versus 153 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 20.5, remaining in the complacency camp. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start once the near double top, or actual double topping pattern completes. A move above the October 2007 highs negates this bearish view, and would confirm a new cyclical bull market underway.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

The corrective action and Friday bounce this week continues to signal the Elliott Wave 2 counter trend topping move is not yet complete. A move to, and possibly above, the 200 day moving averages for the S&P00 and Dow Industrials (charts below) is very possible. The positive reaction to news this week - bad news, very bad news, scarily ugly news, mediocre news, and even positive news - of the stock indexes that held support, and even managed a rally off such support, argues strongly that the current rally has much further to run. The close above the 50 days MAs for the S&P500 and Dow Industrials - while the 20 day MAs are in the process of crossing above the 50 days - also argues that higher prices lay ahead. The low volume on the advance does have us worried about this bullish potential, as does the low number of stocks making new highs.

Thus overall neither the bulls nor the bears appear to have a grip on the trend, and this market badly needs some news to move prices away from the current sideways churn. Fannie Mae and Freddie Mac badly need some money from the US government - and soon, AKA this weekend - which could be the straw that finally breaks the bear's backs (at least over the shorter and more intermediate term.)

While we are agressively positioned long - in line with our trend following indicators - the overall technical set-up suggests we remain in a bear market rally, with the question of when the bear returns, rather than if. The overall technical set-up also suggests the rally has further to run. And perhaps the high volume and rapidly increasing leadership and participation can land going forward as the stock indexes trend higher. That is not the usual pattern seen at bear bottoms, but, hey, we'll take what we can get at these challenging times.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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