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Sunday, September 23, 2007 12:10:36 AM
Amateur Investors Weekend Stock Market Analysis (9/22/07)
http://www.amateur-investor.net/Weekend_Market_Analysis_Sep_22_07.htm
The market rallied strongly due to the 1/2 point interest rate cut by the Federal Reserve on Tuesday and now the major averages are nearing their mid July highs. Personally I believe it would have been better if the August 16th lows would have been retested with the development of potential Double Bottom pattern much like occurred last March which led to a substantial rally from late March through mid July. The current charts of the Nasdaq and S&P 500 show a "V" type bottom pattern has formed which could pose a problem if they are unable to take out their mid July highs accompanied by above average volume as this could lead to the development of bearish looking Double Top patterns.
Meanwhile a few other things to watch include the price of Crude Oil which has rallied to new highs over the past few weeks. In the past when the price of Crude Oil has risen $10 or more (points A to B) this has been followed by some selling pressure in the Dow (points C to D). Currently the price of Crude Oil has once again risen over $10 since the August 22nd low (points E to F) and if the previous pattern continues then we could see some selling pressure redevelop in the market before much longer.
Meanwhile for those following the price of Gold there is an interesting long term correlation between it and the Yield on the 10 Year Treasury Note as shown in the chart below. The last time a significant upward move in Gold occurred was in the 1970's (points G to H) which was followed by a substantial rise in the Yield on the 10 Year Treasury Note (points I to J) which led to higher Interest Rates. However after the price of Gold peaked in the early 1980's and continued lower through 2000 (points H to K) notice the Yield on the 10 Year Treasury Note also dropped substantially as well (points J to M) which led to much lower Interest Rates. Meanwhile even though the price of Gold has risen substantially over the past few years so far the Yield on the 10 Year Treasury Note hasn't risen that much so far. However that could change if what occurred in the 1970's repeats itself.
Finally for those that remember the 1970's into the early 1980's it was a period dominated by a weakening US Dollar, rising Interest Rates and much higher Oil Prices. Thus you really have to wonder if the market will eventually act like it did in the 1970's in the years ahead. A long term chart of the Dow is shown below and as you can see the affects of a weakening Dollar, higher Interest Rates and rising Oil Prices took their toll on the Dow from early 1973 through the early 1980's. In fact the Dow peaked in January of 1973 and didn't exceed that high again until November of 1982 which was nearly 10 years later.
http://www.amateur-investor.net/Weekend_Market_Analysis_Sep_22_07.htm
The market rallied strongly due to the 1/2 point interest rate cut by the Federal Reserve on Tuesday and now the major averages are nearing their mid July highs. Personally I believe it would have been better if the August 16th lows would have been retested with the development of potential Double Bottom pattern much like occurred last March which led to a substantial rally from late March through mid July. The current charts of the Nasdaq and S&P 500 show a "V" type bottom pattern has formed which could pose a problem if they are unable to take out their mid July highs accompanied by above average volume as this could lead to the development of bearish looking Double Top patterns.
Meanwhile a few other things to watch include the price of Crude Oil which has rallied to new highs over the past few weeks. In the past when the price of Crude Oil has risen $10 or more (points A to B) this has been followed by some selling pressure in the Dow (points C to D). Currently the price of Crude Oil has once again risen over $10 since the August 22nd low (points E to F) and if the previous pattern continues then we could see some selling pressure redevelop in the market before much longer.
Meanwhile for those following the price of Gold there is an interesting long term correlation between it and the Yield on the 10 Year Treasury Note as shown in the chart below. The last time a significant upward move in Gold occurred was in the 1970's (points G to H) which was followed by a substantial rise in the Yield on the 10 Year Treasury Note (points I to J) which led to higher Interest Rates. However after the price of Gold peaked in the early 1980's and continued lower through 2000 (points H to K) notice the Yield on the 10 Year Treasury Note also dropped substantially as well (points J to M) which led to much lower Interest Rates. Meanwhile even though the price of Gold has risen substantially over the past few years so far the Yield on the 10 Year Treasury Note hasn't risen that much so far. However that could change if what occurred in the 1970's repeats itself.
Finally for those that remember the 1970's into the early 1980's it was a period dominated by a weakening US Dollar, rising Interest Rates and much higher Oil Prices. Thus you really have to wonder if the market will eventually act like it did in the 1970's in the years ahead. A long term chart of the Dow is shown below and as you can see the affects of a weakening Dollar, higher Interest Rates and rising Oil Prices took their toll on the Dow from early 1973 through the early 1980's. In fact the Dow peaked in January of 1973 and didn't exceed that high again until November of 1982 which was nearly 10 years later.
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