Farrell: Don't Get Comfortable With Markets Yet

To no surprise, the 50 day, 100 day and 200 day moving averages are all pointed down. This is of course true for both the S&P and the Dow Jones Industrials. The 50 day has suffered the most which would make sense since it shows more of the recent pain and little of the relatively better action of a few months ago (and I stress the word relative there.)

Picture that there are three downward sloping lines and the lowest of the three is the 50 day. What we want is for the 50 day to start turning up and cross the other two. We also would like to see the three lines converge as volatility in the market is reduced. It would not make sense to say we are approaching safer territory without such action.

If you have access to charts, run one for the S&P or the Dow from 2001 on. You will see a triple bottom in place starting in September of 2001, following 9/11. I have a feeling that the market we are in needs such a formation before we can say we bottomed. The bottom in 2001 was +/- 800 on the S&P. The low of Friday was 840. Seven years and 40 points!

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  • Fabulous rallies like Fridays are common in bear markets. In the bear market of 2000-2002, there were over a dozen rallies of 5% or more while the market kept falling. I'm hoping that last Friday will prove to be an important turning point. There is more work to be done before we can be comfortable however.

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