Thursday, June 3, 2010

Waiting for a Signal

I described my bullish outlook recently in a previous post. The stock market is presenting what might be a nice entry point for cash right now. And it might be presenting an attractive bear trap. Here are a couple of charts that illustrate why I am not ready to commit to anything but cash until the market leads me to a conviction about what direction it wants to move in. First up is the S&P 500 Index candlestick with its 200 day moving average (200MA) line for reference, and underneath is volume for the index. The 200MA is the long term mean line.
The recent activity shows that this index blasted through its 200MA on May 20 and did it high volume. Since then, it has not been able to trade above the line. In addition, the volume has been lighter. I'd like to see the index make as convincing a move to the upside before I am willing to look at other signals.

In another previous post, I began using the chart shown below and briefly provided some background for why. This is a chart illustrating the number of companies trading above their 150 day moving average. Here it is again, updated, and still not providing a clear signal of a new direction. So until a new direction is signaled, and I recognize it, I like a stash of cash. Scanner