Thursday, February 4, 2010

Weak Technicals

Equity indices are losing a technical battle as the S&P has substantially dropped below its 50 day moving average and out of the upward channel established since last March lows. The market has reached an oversold daily condition, but weekly and monthly indicators are still elevated making me suspect short term choppiness at best with a resolution downward.

The past 10 months have been government quadruple espresso as liquidity was created out of thin air in the public and quasi public sector. They are running out of Red Bull the market could give back some more of that binge.

Fundamentally until the employment conditions improve I don't know how to get excited about the market at high valuations. In an economy that is largely consumer dominated the chart below is no all-clear signal.

Click on image to increase size.

Neither employment nor average hourly wages lead one to believe inflation is just around the corner or that the Fed will raise interest rates soon.

John Barnyak
Stonehouse Asset Management