Bye-Bye, Bears

09/19/11 09:07:22 AM

by Koos van der Merwe

There are simply too many bears out there, calling for a new recession.

Security: SPX
Position: Buy

I have spent a great deal of time trying to figure out a readable and acceptable Elliott wave count of the indexes. Simplicity is still the answer, and the only problem is with all the negativity in Europe and the US; reading the wave count is difficult and complicated. One thing my charts did tell me is that a bullish correction is overdue, and we saw the start of one after Timothy Geithner, the secretary of the Treasury, opened his mouth on Monday, September 12, for the first time in a long time. The market reacted positively to his words, as though it had been waiting for someone to pull the trigger.

FIGURE 1: S&P 500, MONTHLY

Graphic provided by: AdvancedGET.

Figure 1 is a monthly chart of the Standard & Poor's 500. I chose the S&P 500 rather than the Dow Jones Industrial Average (DJIA) because it covers a larger part of the market than the DJIA, which only covers 30 stocks. As shown, my wave count shows that the ABC correction, the meltdown/recession the bears are calling for, is definitely over, completely as of March 2009. This is confirmed by the relative strength index (RSI), which is showing strength. I believe that the chart is correct, and would probably only change my mind should the index fall below the 1008.80 low made in June 2010. The moving average convergence/divergence (MACD) indicator shown is suggesting a sell signal, which is what is probably feeding the bears out there. The problem, however, is that an MACD is a late indicator; it is wise after the event. Note also on the chart that the index does seem to be finding support at the 40- and 80-period moving average.

FIGURE 2: S&P 500, WEEKLY

Graphic provided by: AdvancedGET.

I am still very bullish on the market. Recent political events in the US, and the problems facing the Greek government, have fed the bears in the market. At the moment, no matter how I look at my charts, I simply cannot see this negativity. Bye-bye, bears.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Bye-Bye, Bears

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