Technical Picture - Confirmed Rally

Last week we said "The elusive bottom is in our sights. As we can see from the weekly chart of the S&P above, the head of the inverse H&S bottom is really taking shape. We could bottom as early as next week, or it could take a few more weeks." Read full post here.

This week I'm going to suppress the urge to say that we correctly predicted the bottom, because we don't know if this is the bottom. We have plenty of reasons to believe that March 5th was the bottom, however, we won't be able to confirm it until the reaction high from the November lows has been taken out. That would be the early January highs around SPX 944.

Markets hit 12 year lows in the first week of March. What's so significant about 12 year lows? Twelve-year lows are rare. Thomas Lee, U. S. equity strategist at JP Morgan, says the event has only happened twice, on April 8, 1932 and Dec. 6, 1974. The 12-year low in 1932 was three months before the end of the bear market, while the 1974 low turned out to be precisely the low.


So if we compare the S&P with the NASDAQ, the former took out 12 year lows, the latter did not. However, the NASDAQ has been in a cyclical bear market since the tech bubble burst in 2000. From trough (2002) to peak (2007), the NAZ just edged back into the retracement zone.

Tech stocks led the 2003 recovery, however after 6 months, their leadership waned as depicted by comparing the two monthly charts above.

Expect the same this time round, Financials and to a lessor degree, commodities should be strong in the early stage recovery, but I expect tech, which made a higher low, to finally resume some leadership in the next stage of the recovery.



IBD says we are in a confirmed rally. Tuesday was the reversal day and Thursday the follow through day. We are approaching overbought levels, and I would expect a shallow retracement on lighter volume to start early this week.





Gold is struggling, but it could get a boost on a lower dollar.