Re: Birchtree's account talk
From my friends at Merrill Lynch - Mary Ann Bartels - Technical Research Analyst, 12/14.
"The DJ Utilities Index recently reached new highs. Since 1981 there have been five occasions on which both the S&P 500 and DJIA declined by at least 15%. A peak in the DJUA led four of those declines by 5 to 7 months and was coincident once. At no time did the DJUA lag. This implies that the mult-year uptrends in the S&P 500 and DJUA could continue into the second quarter of 2008 before being at risk for a reversal. The broader U.S. equity market typically does not peak as utilities are making new highs. The utilities have achieved a significant breakout above the 2000 highs.
Because Dow Theory remains in a primary bull market it now seems that the DJ Transportation Index, which decisively violated its 2002-2007 bull market trend line during the recent July-November decline, may be attempting a bullish reversal. A rally through October's recovery high (5023) would represent a move through important chart resistance and a decisive penetration of the new post-July downtrend line. Such a breakout would necessitate the establishment of a new uptrend line.
It is worth noting that the advance/decline line for the big cap S&P 500 has given up less than 15% of its 2006-07 gains, and the A/D line for the S&P small cap index has lost all of its gains.
Our recent work has suggested that mega cap multinationals are an emerging leadership area for thew equity market. The Morgan Stanley Multinational Index has broken above longer term downtrend resistance vs the S&P 500 and is in the process of completing a relative base. This suggests multinationals are still very early leadership for the equity market. Soaring exports are very supportive for multinationals. ISM manufacturing exports has broken out relative to ISM manufacturing imports. Growth in exports has since accelerated vs imports, which is very supportive for the mega cap multinationals.
The ratio adjusted NYSE A/D line this week shows that all three exponential moving averages are prectically on top of each other. This pinching of the EMA's strongly suggests that a dramatic move is to be anticipated in the A/D pattern very soon. It could be up, or like we saw at the end of October when the 10% and 5% Trends kissed, it could be down. In any event, there is a high amount of pattern compression in money flow right now, so wearing of a seat belt, near term, is highly advised."
