Capitalogix Commentary for the Week of 05/03/10

The rally finally ran into some resistance.  Still, the Dow Jones Industrial Average remains above 11,000.  However, the thing that caught my eye last week was that the Dow broke below its recent trend-line.  By itself, not a cause for major concern, just a key to notice.  The question is whether it can get back above that level, or will this be the start of a more meaningful correction?

It is also worth noting that the MACD indicator is showing more downside momentum than it did at the same price level earlier in April.

A Peek Over the Wall.

Is China's Shanghai Index sending a warning about the world economy or just their economy?

Unless things change in a hurry, China's Shanghai Composite could drop significantly.  This chart shows the triangle pattern that played-out over the past nine months.

You can think of the Triangle as a well-contested battle between the bulls and the bears.  Inside the pattern, neither side gives-up much ground.  However, when one side loses conviction, the market  surges in the direction the winners push it. 

Triangles are often continuation patterns.  So, be wary that this move is a head-fake down to trigger a big rally.  Otherwise, the target is pretty far below.

Sentiment Here in the United States is Still Very Bullish.

While stocks have certainly become more volatile in the last two weeks, newsletter writers seem to be taking it in stride.  According to Bespoke, the latest Investors Intelligence survey of newsletter writers  found that 54% of those surveyed are now bullish on the market.  The last time bullish sentiment was this high was back in December 2007, before the crash.

Another important to measure of the crowd’s extreme bullish sentiment is that fewer than 20% of advisors are currently bearish. According to Prieur du Plessis, these are first indications of a market top.

Another Sign of a Potential Top?

The U.S. Treasury Department plans to sell “up to” 1.5 billion shares of Citigroup in the government’s biggest step yet to exit the 27 percent ownership of the bank it rescued during the financial crisis. Bloomberg quotes Geithner as saying: "We’re putting TARP out of its misery," and "the government is withdrawing from the financial industry after forcing lenders to recapitalize with private money."

If you think that is funny, then so is this cartoon.

Business Posts Moving the Markets that I Found Interesting This Week:

• Hussman: Rally Has Ignored Fundamentals & Will Be Corrected Painfully. (BizInsider)
• Earnings Growth: Are the Gains Too Good to Last? -  (BusinessWeek)
• The Looming De-Leveraging Challenge. (McKinsey Quarterly)
• UBS to Retail Clients: Stock Boom Is Over. (InvestmentNews)
• Worried about the PIIGs: Was Greece's Rescue Futile & is Portugal Next? (WikInvest)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Microsoft Won 10 Times More Patents Than Apple In 2009. (BusinessInsider)
• Peek at Tomorrow: Ten Technology Incubators Changing The World. (Forbes)
• Computer Science Loses to Math in New Hiring Formulas. (WSJ)
• Bacterial Colonies Show Intelligence Coping with a Hostile Environment. (Seed)
• World Air Traffic Time-Lapse Video Over a 24-Hour Period. (HuffingtonPost)
• More Posts with Lighter Ideas and Fun Links.

Related articles by Zemanta

• U.S. Treasury to Sell 1.5 Billion Shares of Citigroup Stock (businessweek.com)
• China's Market Selloff Spells More Than Just Trouble For US Stocks (businessinsider.com)
• Asian Shares Rise as Shanghai Expo Attracts Millions (dailyfinance.com)
• Excess Bullish Sentiment Waning (ritholtz.com)
• An Apple bull sounds a warning for May (tech.fortune.cnn.com)