Has the Market Actually Bottomed?

New month, new market... the “March Madness” we saw last month may have taken a break this week – the S&P is only up 18 basis points (0.18%) since last Friday’s update. But things look especially interesting now… let’s take a look at the charts:

While it may feel like we’re barreling back into Bull country, if you take a look at what’s been going on over the past six months, things look decidedly down. What is noticeable is the fact that the uptrend at the end of it has been pretty long lasting… basically the entire month of March.

What you’ll also probably notice is the fact that the S&P is in a very interesting spot right now – right close to that red downward-sloping resistance line (the price-level the market is having trouble rising above).

The S&P has tested that resistance line in the past, and based on those bounces, it’s clear that that red line is pretty powerful. Will it hold up the next time the market decides to make a move?

Last week we talked about the S&P’s proximity to its 50-day moving average (the blue line that represents the average value of the S&P 500 over the past 50 days). As expected, as soon as it touched that level, it moved in a big way and broke right through. Now that it’s found support above that line, the downtrend is the market’s next target.

If it can successfully make it through the thick red line, we may be looking at a sustained uptrend!

What’s Moving the Market

Some of the biggest news this week was the announcement that General Motors (GM) may have to seek bankruptcy protection. "The only thing we've discussed is the appropriate means to assure a rapid [bankruptcy]," said Fritz Henderson, GM’s newly-minted CEO. "It's all about speed."

Investors also clung onto the notion that Thursday’s new mark-to-market accounting rules would result in big gains for the big banks. But that’s a notion that’s just not entirely right; the new rules are just a clarification of how the old rules should be implemented.

Position Updates

While the past week wasn’t amazing for the market at large, it was very good for the Rhino Stock Report’s portfolio. As of Thursday’s close, our open positions are up 7.5% - that’s not including our 24% average booked gain in March.

On the top of the list are j2 Global Communications (JCOM), up 36% since we added it to the portfolio, and Computer Sciences (CSC) up 15% in the past 4 weeks.

EMCOR (EME) was another of our big winners this week; the stock was named Fortune Magazine’s most admired construction company – and why shouldn’t it be? Our position is up 19% since the Rhino Alert went out to add shares.

Disclosure: JCOM, CSC, and EME are long positions in the Rhino Stock Report’s model portfolio.

Comments

[Jonas Elmer...:]

schlumpf - You're right... it's the fact that everyone is long now that should make SA investors nervous. As great as March was, the chart in the article shows that we're still in an unquestionable downtrend.

If stocks break out above the trendline, we'll likely see the short-term uptrend continue in a sustained way, but from a technical perspective I think that the 200-day moving average (currently around 1000 for the S&P) is going to pose a serious ceiling for stock prices.

Apr 03 11:35 AM

[drbob66:]

1000? That's 20% from here! Buying the SPY here (stopping out if it closes below 780) seems like a pretty reasonable risk/reward to me.


On Apr 03 11:35 AM Jonas Elmerraji wrote:

> schlumpf - You're right... it's the fact that everyone is long now
> that should make SA investors nervous. As great as March was, the
> chart in the article shows that we're still in an unquestionable
> downtrend.
>
> If stocks break out above the trendline, we'll likely see the short-term
> uptrend continue in a sustained way, but from a technical perspective
> I think that the 200-day moving average (currently around 1000 for
> the S&P) is going to pose a serious ceiling for stock prices.
>

Apr 03 01:05 PM

[Jonas Elmer...:]

Exactly... but that is a big IF. If you want to take the technical trade, wait to see what happens after SPY hits that thick red resistance line. Until then, it could go either way (see the "bounces").

Apr 03 01:10 PM

[Old Trader:]

The chart accompanying the article doesn't go back far enough, but I find myself thinking that assuming the S&P doesn't break through at the 950/1000 level, we won't see the start of an extended period of a range-bound market, with the S&P trading between 950ish on the upper end, and 700ish on the low end. While that would be frustrating for the bulls, it would provide for some interesting swing-trading opportunities, both on the long and short sides.

Apr 04 01:19 PM

[Old Trader:]

", we won't see the start of an extended period of a range-bound market, with the S&P "

Should read "we will see the start"...sorry about that...

Apr 04 01:20 PM

[Maxe Paul:]

I expect this rally will last for several moths before the final new lows, maybe in October to March next year. You can buy on dips, and yes i believe we will see the moving average tested, up around the 1000 in the dow.

Further weakness in the US dollar will fuel the surge in equities, though be ready for the reversal when it comes, because the final leg down will be extreme IMO.

Apr 04 01:58 PM

[AndrewBaker:]

S&P 500 has a big job to do at 850, and the volume has been dropping too as this rally has gone on. I missed most of the March rise 'cos I didn't believe it. I've got some in now as a consolation prize, but my shorts are right at hand to put back on as soon as we turn back down: some time next week?

Apr 04 02:26 PM

[raising4dau...:]

"If it can successfully make it through the thick red line, we may be looking at a sustained uptrend!"

Gutsy call. I agree that if we make it through the thick red line, we MAY be looking at a sustained uptrend. Then again, if we make it through the thick red line, we may not.

Apr 04 04:46 PM

[Fred Voetsch:]

Things haven't changed and in fact, we now know much more about future earnings and the likely future state of the economy. Given that fair value for the DJIA is around 6200 and the fact that we have been overvalued for some 2 decades, and given that the government has thrown everything but the kitchen sink at the problem already (creating God knows what unintended consequences) I think it is safe to say that we will soon get back to the business of revaluing the stock market and that means moving steadily lower and then staying at lower valuations for the next decade or two.

Apr 04 08:50 PM

[ernmor:]

I am VERY defensive just now of the Indexes.
- The first thing is to lock in ALL profits ! Non of this crappy "Take a little off the table" stuff. If 'close stops' don't hold, so be it. An army of so called financial advisors, did not PROTECT their clients, and that to me was a negative 'Wealth effect' on our citizens ! We need to learn how to Sell, so that we can learn how to BUY ! Show me someone who knows how to buy and I will show you someone who knows HOW to buy. It's time that the Financial business starts looking after the customer who pays for good around advice ! Will talk about charts some day and talk about how they should be set up. set them up. I notice that in 40 years, that I have studied published charts, that the biz has not learned the importance of 'Standard Setups' for different time and price periods. No wonder we never learn what a chart can tell us. Take JPM set to a weekly chart. There's a pattern that happens in all time frames, that I call Propeller action. It happens in areas of apparent randomness, which I think is not random at all, but a market searching for away out ! A good example of this is JPM ! In Sep. 07 to Nov.08, we see 6 SUCCESSIVELY Higher highs and 6 SUCCESSIVELY Lower Lows, for 12 Prop Blades, as like to call them, into Nov.2008. So look at all the chances to cover Long profits and or short profits that any good Trader could take advantage of. I have the chart, but I don't know if there is a way to show it you... Buy for now take care.

Apr 04 08:55 PM

[Fred Voetsch:]

On Apr 03 01:10 PM Jonas Elmerraji wrote:

> Exactly... but that is a big IF. If you want to take the technical
> trade, wait to see what happens after SPY hits that thick red resistance
> line. Until then, it could go either way (see the "bounces").


And AFTER that it could go either way.

You're entitled to your opinion but if you would deal with reality and and do some real research you would see that the future of the stock market over the next two decades is all but set in stone.

Research these topics:

1. Demographics.

2. Generational Dynamics & Patterns.

3. Long term trends of the stock market to see how the market simply does not keep doing the same things in terms of valuations for more than about two decades and it then tends to "correct" for the past era.

4. Economic data. All trends are down with only slight upticks in a few areas month-over-month, mainly based on seasonal variations. Take a good look at exports of asian countries.

5. Debt. It is still a HUGE problem only now it is the TAXPAYER'S problem.

6. The new trend of consumers to save instead of spend. This is a long-term adjustment that will last for decades as new generations see what we did to our economy.

7. P/E's and dividends.

www.decisionpoint.com/...
www2.standardandpoors....
online.wsj.com/mdc/pub...

Last but not least I suggest you take a good look at how dishonest our media, government and even the typical investor is right now. Take a good look at the three links above and notice that the Wall Stree Journal and Bloomberg TV are reporting an outright LIE for the P/E ratio of the S&P 500. I know they are lying because I have informed them of the error and they do nothing. Analysts and investors then repeat this lie about how the P/E ratio of the "stock market" is 10 or 15 when in fact it is 18 at best, using Q3 earnings and 60 using Q4 earnings which are 99% complete. The DJIA has a P/E of 26, two to three times what it should.

Until we quit lying to ourselves this market will only go down with the occasional bear market rally.

Apr 04 09:10 PM

[Jonas Elmer...:]

"And AFTER that it could go either way.

You're entitled to your opinion but if you would deal with reality and and do some real research you would see that the future of the stock market over the next two decades is all but set in stone."

Fred, this is a technical piece; it takes a look at short-term trends (notice that we're looking at a 6 month chart) to take a look at where the market will be in weeks and months, not years.

If you think that it's out of the question to see a 20% swing in the next few months after the market jumped 23% in the last three weeks, that's your opinion, but it's one that I have some trouble resolving to.

The fact of the matter is that we're looking at a different kind of market; that's both scary and exciting. My subscribers - some of whom have been in the market since the 1960s - are saying the same thing. Still, it's an exciting market because there are myriad opportunities to make smart investments right now. Our track record is proof of that.

The fact is that the market has been irrationally exuberant for a long time doesn't mean that everything's ready to change now. To quote John Maynard Keynes, "...the market's ability to stay irrational often outlasts our ability to stay liquid."

Investor sentiment and economic fundamentals are changing on a daily basis, and right now, and that's going to dictate where the market goes much more directly than the P/E ratio of the S&P 500.

Maybe that'd be a good topic for a future article. Stay tuned.

Apr 05 12:34 PM