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Sunday, September 13, 2009

I'm not really bearish but stocks could get tripped up here

Running late tonight but I wanted to publish the two weekly Alert HQ charts, especially since I skipped last week.

By way of background, this past week had no news events of special importance but stocks returned to their winning ways. Looks like we are only allowed one bad week in a row before the bulls return.

The question is, will the bulls hang around this week? The Nikkei is down hard as I write this. China was up but is now falling, as well. Will U.S. stocks catch the same cold that Asian stocks seem to be suffering from?

We look for clues in some of the charts that follow.

The view from Alert HQ --

Charts of some of the statistics we track at Alert HQ are presented below:

SPY vs the market, Moving Average Analysis, 09-11-2009
The above chart, illustrating our moving average analysis, is at a bullish level now but I think time is running out. There are no obvious bearish signs here, just a situation where it looks like stocks have been running for long enough so that the time is right for a breather. This is just a rough estimate that there is a cyclical component to the movement in the market and the chart above suggests that we've had two peaks close together and a bit of a downdraft should be expected.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

SPY vs the market, Trend Analysis, 09-11-2009
The same analysis applies to this chart. No bearish signs; indeed, bullish signs are quite strong here. Nevertheless, there are worries. The number of stocks in strong up-trends has not surged as strongly as the number of stocks showing strong moving average action as illustrated in the first chart. And that cyclical aspect also seems to be at work in this chart, implying a potential pullback.

Conclusion --

Caution, caution, caution. Not only do the charts above suggest stocks are due for a rest, there is plenty of event risk on the horizon. By this I mean that there are a ton of important economic reports coming out this week and an unanticipated failure to meet expectations could be the catalyst that initiates a slide in stock prices.

To be specific, this week's reports include: PPI, retail sales, NY Empire State Manufacturing Index, business inventories, CPI, capacity utilization and industrial production, building permits, housing starts, initial claims, continuing claims and the Philadelphia Fed index.

If every one of these reports turns out to be rosy, well then, stocks would deserve to surge again. Somehow, though, I suspect that is too much to hope for.

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