Tuesday, September 29, 2009

Why I'm not tracking market technicals right now

I mentioned a while back that I was taking a break from making market forecasts. After the March low, I began to suspect that prices weren't playing by the normal "rules" - either fundamentally (PE or yield) or technically (price formations, volume, etc.) This chart of the S&P 500 index confirms my suspicions.

Normally I'd be inclined to say that the S&P is in an ascending wedge formation, which forecasts an eventual drop through the lower trend line. However, as the chart shows, prices have instead risen through upper trend lines twice already, so I'm doubtful that the new upper trend line is any more meaningful. My favorite sentiment indicators have been showing optimism about stock prices rather than pessimism, which is usually not a favorable condition for a rally like this.

Meanwhile, the dividend yield of the S&P 500 has fallen to near 2%, which is phenomenally overpriced by historical standards. My hat is off to those who have profited from this six-month rally, but everything about it seems far too speculative for me to comfortably participate in.


linc campbell said...

I am sure you see the delightful irony in calling this rally speculative... ya know, since you are speculating it is speculative. ;)

Other than just TA, do you get into much quant stuff (beyond p/e or Shiller's P/E10, or dividend yield) to mix with your TA models?

linc campbell said...

Ironic timing: http://tr.im/BlPG

linc campbell said...

Another relation... http://dshort.com/articles/2009/SP500-MA-update.html