Gloom and Boom

Here are a pair of images (top one from the Chicago Tribune and the bottom one from inside the latest issue of Newsweek) which I think captures well the public's mood about the economy and the stock market. The images speak for themselves. This is not a psychological environment in which any significant (say more than 10%) drop in stock prices is likely, or even possible.

The Goracle

Here is an image of the cover of Newsweek's latest issue. It depicts the Goracle, Al Gore, who aims to be the first "green" billionaire.

From this and from related considerations I draw these conclusions:

• The planet is currently cooling, not warming
• Kyoto is dead and there will be no agreement on a similar climate treaty which even pretends to bind developed nations to carbon limits
• Cap and Trade? - dead
• Buy carbon !
  

A new bullmarket in NYX - the New York Stock Exchange

Here is an image of the front page of today's New York Times. At the top left you will find a story about the New York Stock Exchange. It tells us that the exchange has fallen on hard times because of new competition from electronic markets and it generally paints a bleak picture of the NYSE's future.

At the top of this post you will see a weekly chart of NYX, the common stock of the NYSE-Euronext, the parent company of the exchange. The panic of 2008 was not kind to NYX - the stock had lost more than 80% of its value at its low point in March of 2009.

Here we have a classic contrarian combination. A devastating drop in a stock coupled with a bearish front page story about the company in the New York Times. Icing on the contrarian cake is the fact that the 200 day moving average of NYX (red line on the chart) has turned decisively upward in the face of a lot of bad earnings news.

I think NYX will move much higher during the next fifteen months. A reasonable expectation is midpoint resistance that stands near 74 (purple dotted line).

Dollar is scraping bottom

Here is an image of the front page of today's Chicago Tribune business section. I think it shows that bearish sentiment about the U.S. dollar is pretty extreme. I think that the 75 level in the dollar index will prove to be strong support. The next big move in the dollar will be upward from here and should carry the dollar index to 100 or higher.

Shanghai Update

Here is an updated daily chart of the Shanghai Stock Exchange composite index. I last commented on this market here.

As you can see the drop from the from the early August high ended in early September, just about in the target area I had highlighted (purple oval). That target represented the confluence of the rising blue trend line and midpoint support denoted by the horizontal red dash line.

I think a move to new bull market highs for this index is about to start. It should carry the index above the 4000 level before another substantial break begins.

Climbing the Wall of Worry

Here is an image of the cover of Time Magazine's latest issue. I don't think it has any immediate implications for the stock market's trend over the next few weeks. But I think it does accurately reflect (and reinforce) the public's current attitude towards stock market investing. The stock market turns people off - largely because of its very negative performance during the panic of 2008.

This cover story reinforces my conviction that the "wall of worry" that the stock market climbs during a bull market is a solid one and extends much further upward from here. We won't see covers like this one near the top of the current bull market. This top is not likely to develop until late 2010 and I think it will return the Dow and the S&P 500 to within whispering distance of their 2007 high points.

Confirmed Bull Market !

As you can see in this chart, the 200 day moving average of the S&P 500 index has risen 1% above the lowest level it reached during the 2007-09 bear market. In my book on pages 129-130 I explained the contrarian rebalancing strategy for stock market investment, a method that I think is well suited for the conservative contrarian trader. This advance of 1% in the S&P's 200 day moving average has special significance for the conservative contrarian who is following this strategy. Since a huge bear market crowd had developed during the bear market the rally in the 200 day moving average means that the conservative contrarian should now adopt an aggressively bullish stance toward the U.S. stock market. He does this by moving money from bonds and cash into stock market index funds or ETF's until he has an above-normal portion of his portfolio invested in the stock market.

When will the conservative contrarian move back to just a normal stock market position instead of an agressively bullish one? In my book I said that the wisest course is to wait for the bull market to develop until prices have risen for at least 20 months after the start of the bull market and have risen at least 65% from the preceding bear market low. So the conservative contrarian would now be expecting to stick with his above-normal long position until November of 2010 and until the S&P has risen as least as far as 1100.