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Dr. Kris hails from the land o' lakes, beer, bratwurst, and Bucky Badger. She traded in her cheese hat for a propeller beanie and has never looked back. She has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her... More
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  • Market Notes: Bull/Bear Seesaw -- February 24 0 comments
    Feb 24, 2014 5:43 PM

    The bulls pushed the S&P 500 to an all time high but the bears came charging back forcing the index back under 1850. The index has been testing this level since the end of December and so far it hasn't been able to close above it. The market-leading Dow Transport Index (DTX) pierced through overhead resistance at 740 before reversing course midmorning. Its retreat was almost as swift as its ascent. The fact that the DTX lead the other indices in the decline is not a good sign for a bullish continuation tomorrow.

    What's been interesting as of late is the fact that the intraday support/resistance levels have been, for the most part, signaling more room to move to the upside (on an intraday basis). Lately, however, the market has been doing just the opposite and I'm wondering why. For one, I could be calculating the pivot points incorrectly but today's pivots were so cut and dried that anyone could have seen them. What I'm left with is a feeling that there really is a battle going on between the bulls and the bears. VWAPs on both the positive (i.e., buying) and the negative (i.e., selling) sides have been elevated. This could be due to a couple of things: 1. sector rotation (that is, the selling of stocks in one sector and the buying of stocks in another), or 2. the reflection of a bifurcation in investor sentiment (aka a bull/bear struggle). My suspicion is that it's a bit of both.

    The bears have a good case against further advancement. The market has been overvalued for quite a while. Consider that today the P/E ratio of the S&P 500 is roughly 30% above its historical average (19.58 vs 15). Also consider that inflation is rising (commodities across the board are becoming more expensive, mortgage rates are rising) while unemployment and wages stagnate. Corporations have been boosting their earnings mostly by artificial means--slashing jobs, freezing salaries (except at the very top) and buying back their own stock--while revenues have barely risen. This is a situation that can't last forever and when the manipulation of not only the balance sheets of companies but of the Federal government is no longer feasible, then all heck is going to break loose. These are the main reasons why the bulls haven't been able to shoo the bears away.

    But it's not as if the bears should be looking to party hardy. Oh, no. They might have some fun for a while but Mr. Ranger will be putting a stop to any extended picnic. Technically, long-term charts (monthly, quarterly, yearly) of the major averages indicate that the market is currently in a consolidation phase and that the future direction is up. Not just a little bit up, but an up-up-and-away type of up. The time frame we're looking at here is not just years but decades.

    So what's the moral of the story? Pretty much the same as it's always been--the bears win the sprint but the bulls win the marathon. Place your bets accordingly.

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