It’s been nearly a week since the teleprompter reading of the State of the Union. Stocks had been in a slide going into the reading, and continued through the end of the week, and of course have corrected back up part way so far this week. Certainly most presidents try to put a positive spin on their agenda and accomplishments, or lack of accomplishments in this case. But it was really astonishing how Obama could face the nation with such blatant lies. There was much slight of hand in making his arguments to the people. For example the spending freeze, which, by the way, will not start until next year, and oh, by the way it is only on a very small portion of the budget which was of course already increased by a substantial amount. Am I missing something or did Obama slam McCain during the campaign for proposing a spending freeze? And speaking of slamming, it was really extraordinary how Obama slammed the Supreme Court, sitting silently right in front of him, and made some obvious mis-statements, which Justice Alito now famously acknowledged, silently. It was a bit classier than Joe Wilson last year, but otherwise similar.
What was of course predictable was Obama blaming and whining about inheriting the economic mess from Bush. There is some truth to this, but much of the spending was done in the final two years under democrat majority, and that majority prevented attempts to regulate Fannie and Freddie. And that majority wanted even more spending than what was finally granted. Were any democrats that were in the majority for those two years calling for spending cuts and regulation of the lending industry? Few, if any. But Bush gets all the blame. He deserves some of the blame. But the very people blaming him, including Obama, are at least as complicit. I think Obama has played the blame game far too long. The American people are getting tired of it. He was supposed to take charge and fix everything. But now that the kool-aid has worn off we all see that he is floundering and doesn’t have a clue. And Beavis and Butthead sitting behind him at the State of the Union reading are even more clueless. It frightens me that these people are in charge of such a powerful and economically important country. Yes we are still powerful and economically important, but will be much less so if Obama has his way. The leadership in this country needs a real change that we can all believe in, not leadership that was based on a vague promise delivered to a hypnotized and intoxicated public.
Stocks over the past couple of weeks have finally put in a decent pullback. This pullback appears similar to the pullback last October, however that pullback didn’t really threaten the uptrend the way this one has. The previous pullback left the structure of the uptrend intact as it didn’t violate any of the previous significant lows, such as pivot or swing points. The current pullback has. Also, they way I view trends via the blue moving average lines, this pullback has turned those lines negative. The only other pullback since the start of the uptrend since March that turned the trend down was the pullback last June, which had two small impulses down.
The first two days of this week have rallied sharply back up near the declining moving averages. I would expect a test back down as the price approaches that darker blue moving average, if that should happen. The weekly trend still looks bullish in my opinion, so despite the recent downmove, I still view this as more of a correction in an uptrend rather than the start of a major trend reversal. At least for now. That view would change if the next down impulse exceeds the previous pivot and the downlegs increase in size and volume. It is quite possible that the entire upmove from the March lows is nothing more than a correction of the bear market from October 2007 through March 2009. The S&P is currently sitting near the 50% retracement area based on that entire bear market range, and is also within the fibonacci zone of that range, for those who believe in such things, which I do not, but those concepts make interesting chatter.
As a technical analyst it should be enough to just look at the charts in isolation and make an intelligent assessment of the market condition. But in reality I find a need to explain to myself why a market moves up or down based on what motivates buyers and sellers. Many times there is a disconnect between what prices do and what seems that they should logically do based on the fundamental, economic, and political backdrop. It seems we are in one of those times now where logic and reality are at odds. Perhaps the market sees change in the future. But the market doesn’t always do such a good job at predicting the future. Are earnings improving based on sales or just cost cutting and rebuilding depleted inventories? Can sales actually improve if employment figures stay bad? If earnings are not based on increasing sales can earnings continue to improve once inventories are replenished and no further cost cutting is feasible? Can the dollar keep falling and spending keep increasing? If interest rates start to increase how can we afford to service the debt? What will happen if the mid-term elections fail to change congress and the democrats can pass cap and trade, health care, and whatever else they might want to do? I don’t think the stock market is asking enough questions. There is much to fear out there. It’s not enough to just put piles of money into stocks because there is no place else to put it. But then again, the technical don’t care about any of this. Explanation is not necessary.