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And The Market Says

McClellan Oscillator and Summation Index

Given that we’ve had a really ugly June – even the defensive stocks that lured so many people into them last month are down – I thought it would be interesting to take a look at what the major technical indicators are saying.

Above is the graph of the McClellan Oscillator and of the Summation Index.

The Oscillator gives us short-term indications of whether the market is over-bought or over-sold. Readings above the orange line tell you that you are getting over-bought and readings below the orange line tell you that you are getting over-sold. You can see that over the last year, this indicator has only been more over-sold on three other occasions.

The Index is clearly above its orange line but it has been bouncing off of the 400 reading six times since December – and you can see that the bounces are getting weaker. This represents a weakening of the intermediate trend and based primarily on the negative economic news we’ve seen in the past few weeks.

These are telling me that we should get a positive move up in the market soon but that the intermediate trend needs something positive to happen or the move will be short-lived.

There is a lot of negative economic news out there – weakening industrial production numbers, worsening unemployment, a new low in housing – coupled with the situation in Greece and the other weak economies in Europe, and you have a lot of headwinds that have investors fearful of a drop-off in corporate earnings.

I’ve been reading some analysts who say that a default in Greece on their national debt will be worse for the world than the Lehman Brothers bankruptcy. We all know that situation preceded the 2008 stock market crash. So, I thought it was important to look at the TED Spread which I’ve written about here in the past as being my warning sign of impending disaster.

You can see the big spike up in the middle of the graph which preceded the Lehman Brothers bankruptcy – this graph is the tell-tale heart of indicators and right now it is telling me that at this point in time there is no indication that the situation in Greece will lead to an implosion of the world’s financial markets and cause a return to the crash-level lows.

So, at this time, it looks like we have a garden variety correction. Those are times to reposition portfolios, cull the companies and investments that likely won’t perform well in coming months and to move funds toward undervalued investments (particularly those that have sold off more than fundamentals dictate) in preparation for an end to the correction.

Since today is the anniversary of D-Day I thought some might like to hear some history in the words of someone that was there:

Click here for today\'s video on YouTube