ARCHIVED COMMENTARY
S&Ps Inch Toward
Revitalizing Bull
For edition of May 23, 2007
With a U.S. recession just a statistical heartbeat away, any sane observer might conclude that the stock market is staging for a spectacular plunge. In fact, it is within mere hundredths of a point of opening up a lush new pasture for bulls. The chart below shows why this is so according to the Hidden Pivot system, the analytical method I use to avoid letting my innate bearishness blind me to the obvious.
In determining trend strength, the simple rule I use is that a rally leg must surpass two prior peaks to renew the trend and keep the bull healthy. Although the S&P 500 Index did not quite achieve this when it reached a new record high on Monday, it came within a mere 0.22 points of doing so.
A month earlier, the S&Ps easily surpassed the “internal” #1 peak, warning off any bears who intend to survive the “Stocks Gone Wild” lollapalooza of 2007. However, it remains for this key index to surpass the somewhat more daunting “external” peak #2 in order to clinch smooth sailing for at least the next several months.
This interpretation is somewhat unconventional in that most chartists are focused on the questions of whether the S&Ps will exceed the all-time high at 1552.87; it was recorded six months earlier than the one-off high I’ve flagged. But it is the lower peak that counts most in my estimation, and if it is exceeded without an intervening pullback of more than a week, that would all but guarantee that the bull will demolish the higher peak.
“Go away in May”? Not if the S&Ps hit 1500.10 before next Friday.
