Is the Uptrend Over?
Research for Online Investors

by John Dalt

8/18/10

We have been warning our premium subscribers of our fear the market will experience a hard sell off in August or September, retesting the low of 1010 set on July 1.  In our letter to Buy, Sell, Hold subscribers last night, we said we are not as convinced lately this must occur although we still believe it is possible.

A chart of the S&P 500 may help explain our concern.  This is a “point and finger” chart that helps us identify the trend in the market.

The columns of X’s are uptrends, and the 0’s are when the market is going down.  The chart has the big past trends; the red line identifies the downtrend in late ’08 and early ’09.  Then the blue line shows the uptrend that began in March of ’09

The question we are asking is, “Did the uptrend end in April ’10? Or to put it another way, “How long before a Red Line appears above last four months?”  A red line would signify the tops of any rallies in a downward trending market.  We could drew a straight line from the top at the end of April (4 & 5 signify month in top of columns) sloping downward across the tops of the columns to the present.  We could then draw a line from the bottom of the column at 7/1/10 sloping upward across the bottoms of the columns.

These two lines form a cone that will meet in the next few days (weeks?).  The market is going to have to push through one of these two intermediate trend lines.  Which will it be, up or down?  When one of the trends is violated, we expect the movement to be aggressive because it will verify a new short term trend for traders.

One hint; StockCharts automatically calculates a value.  In this chart it is (drum roll please), Bearish Price Objective 1010.0  Like the TV commercial says “What do I know; I’m just the 300 pound Gorilla in the room!”

Our investing advice today, watch your stop losses.

I enjoy reading Sam Collins of InvestorPlace.  Sam puts out a market commentary after the market opens every market day.  His commentary on market sentiment this morning rang a bell with me, as it verifies much of what I have written concerning money flows with bonds vs. equities and confidence in the market.

Sam wrote “The plain truth as far as the banks are concerned is “why take any risk when we can borrow at 0% and make 1% or 2% by sitting?” And the public has been burned so many times that most investors are just as happy to risk a little in the bond market while keeping most of their liquid assets in CDs and money markets.

The plain truth is that we need leadership in Washington, D.C., that favors something more than higher taxes and more regulation. That formula is so one-sided that any Econ 101 student can recite the ills of the 1930s and put together something more imaginable than what’s coming from D.C. these days.

The political winds from Washington appear to continue to favor taxes and regulations, which are the opposite of what is needed for growth and increased employment.”

Sam, I couldn’t have said it better myself.  We can also look back to the Iron Lady---

To cure the British disease with socialism was like trying to cure leukemia with leeches.--- Margaret Thatcher

Editor’s note:  Is anybody in Washington listening?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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