Saturday, December 29, 2012

Monday and beyond

Developed by Sherman and Marian McClellan, the McClellan Summation Index is a breadth indicator derived the McClellan Oscillator, which is a breadth indicator based on Net Advances (advancing issues less declining issues).

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In the chart above, breadth topped last February, 2012, bottomed in June, topped again in mid September, and bottomed in November, only to rally into December, this month. The RSI gave sell signal at top in Feb and a buy signal at bottom in June. No signal since. However, all year each top was reached with less breadth (fewer advancing issues) i.e. fewer participating stocks. This is the definition of weak technicals. A healthy bull grows on expanding participation. That's the context we find ourselves in on Monday, last day of the year. How the fiscal cliff resolves itself is only of interest for the lifetime of a Mayfly. If Congress manages to coalesce for a deal, expect a pop up in stocks from the hysterical bulls. It won't last. The technical undergriding of this market is terrible. I know TV and Newspapers are screaming--too shrilly for me--that Europe is on the mend, housing is turning up, China is in recovery, emerging market is going just gangbusters, and the good old US of A is about to regain its glory as leader of the free world--Rocky! Rocky! Rocky! Can't you hear it? From where I sit all that is happening is the rich are once again duping the middle class. Behind the scene, as Mark Hulbert is reporting, corporate insiders are selling more than they have in years. What do they know? Also, Warren Buffett is selling. Yes the man who took out an ad in NYT advising you all to buy. I'm reading that his selling is alarming people in the business. Believe me, things in Europe are worse than ever. France, second economic power of Europe, is tottering, and Hollande can't stand Merkel, who's holding up the whole structure--such as it is--by herself. And ask yourself, how can a communist country, China, out capitalize the free world--that's an irony of history yet to be laughed at. Oh, I'm not pessimistic--I'm morbid. Yet, if you have the good fortune to meet me, I'm quite convivial. Good luck, and may I be wrong for the rest of the world.

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