Friday, January 27, 2006

Morning Market Technical Update

The S&P 500 Index is in a critical spot right now. After last Friday's huge decline it found support at its 50-day moving average. The S&P 500 climbed Monday and Tuesday of this week, cutting below last Friday's low on Wednesday then recovering to close basically unchanged, then yesterday climbing higher, turning back down, then going higher into the close to finish right at the 20-day moving average.

Continuing on yesterday's late strength, a VERY big day in Japan, we should see a positive open. The futures have backed off slightly b/c of the 4th Q GDP numbers coming in less than expected, (which could indicate to the Fed it was time to stop raising rates a few months ago, and not to raise rates again next week), but we should still see some early strength.

Critical support is the 50-day, and more importantly last Friday's low. If the morning burst is reversed this test could come sooner than later. Other critical levels are the January highs. A test of the January highs, 1294(ish), that is tested but not overtaken will lead to more sideways action unless the January, then December lows are broken.

We're still in a bull market, but the near term will show us if we're in for either more back-and-filling sideways action, a continuation of the uptrend or a more significant draw down to test the October lows.


  1. What's your take on the inversion in the yield curve? [Reuters Article]From what I understand... short term interest rates are higher than long term interest rates (i.e. you'll get a greater return on a short term investment).

    In the past this was a strong indicator of economic recession, but it sounds like most economists aren't too worried.

  2. Yeah, the inversion doesn't make sense. Why would anyone buy the 10 year notes if the 2 year notes give a higher return?

    And is Bush really gonna lower taxes? You know that no one is going to reduce spending. It just seems like a short term fix that would lead to a worse situation in the long run. What is your take, Brad?

  3. It is an extremely ominous sign if the yield curve (90-day T-Bill rate > 10-yr T-Note) inverts for over a month. 5-Yr > 10-Yr, 3 and 1 Year doesn't have the same track record. So far the inversion, 90-day > 10-Yr was quick. Over the last half century each time the yield curve has inverted, even for a day, the economy either went into a recession or saw a significant slowdown. A very similar situation occurred in 1994. After a yield curve inversion, GDP slowed quite a bit without a recession following.

    There was an inversion in 1994, Q4 1994 GDP growth was 4.8%, followed by Q1 1995 growth of 1.1%, which just happened to be the reported GDP growth today for Q4 2005. Q3 2005 was 4.1%.

    A slowdown here could occur without a recession near the same way things played out in 1994/1995.

    Not to say that the same thing will happen exactly, or to downplay its significance, an inversion in the yield curve does not necessarily mean a recession is forthcoming. Obviously though, 1.1% growth is a slowdown vs. growth over the 3.5 - 4% we've experienced over the last few years.

  4. So, um.. how would you finish this sentence:

    Invest all your money in ______?

  5. You shouldn't throw all your money at one thing, maybe 2, but not 1. Unless that one thing is a horse race or football game.

  6. Solid advice.. who you got, Steelers or Seahawks?

  7. I like the steelers, or Stillers if you name is Kalid. They should be able to score and their defense will keep the pressure on Hasleback. If they keep that "we get no respect" chip on their shoulder they should be fine. Is 4.5 still the spread?