From a technical standpoint, the markets had a perfect setup last week. On Thursday, the S&P had a reversal at 820. Basically the low of this market except for the brief 2 day drop below 800 and dramatic snap back. Then on Friday, the S&P closed over 850 which a lot of technical traders consider the low of the trading range. Otherwise, buy at 850 and sell when the market reaches 920-940. Currently the 50 day EMA is at 904 so a move above this level would also encourage buying.
From a psychology standpoint, the situation couldn't have been dire the last 6 months. Of course, partly from the fear of changes coming from the Obama presidency such as higher capital gains taxes. Now that Obama will actually be in office I suspect we'll see some of that fear dissipate. He's already made it clear that the capital gains taxes will likely not be changed until 2010. Plus the huge stimulus plan about to be finalized. Not to mention, the media is likely to point a much rosier picture now that the anointed one will be in office. It won't surprise me to see consumer confidence rise quickly as 2009 progresses.
The market wanted to rallied shortly after Obama's victory to the 1,000 range. Don't be surprised if it happens again. At this time, don't be surprised when the media begins pointing to a bright future. Something they dare not do when Bush was still the President. This story wouldn't be so ripe if the markets had already rallied to say 1,200. Hence, it just seems like the perfect setup. This week shall be fun to watch especially if you've covered most of your shorts.
Copy from a Don Hays article on 12/19. Predicted back then that the inauguration would be the perfect rally time following how the markets bottomed in ‘42 and ‘74.
Our 1974 rhyme that we hummed to you for the last week or two has not been destroyed yet, but even if right is definitely only a rhyme, not a reprint. We’ve also presented 1942 as a possible model, and in many ways we think 1942’s situation is a little more similar to today’s market than 1974. But again, we are only searching for some historical wisdom that can be translated into today’s market expectations. We’ll show you those two historical examples in today’s report. In both of the two previous examples, at the current time-scale the markets took at least a couple week’s sabbatical. In 1942, it took almost a month off. I guess in relation to the condition of our overbought/oversold indicators we would opt for the 1942 4-week sabbatical example. Also, that would almost perfectly line up with the Inauguration of Barack Obama as President. Hollywood couldn’t plan a better script. We continue to hold out, however, that a significant bottom has been made, and based on the line-up of super-strong Psychological, huge monetary liquidity, and stock market valuation that ranks right up there with the bargain basement values recorded at the bottom of those bear markets in 1974 and 1982, we believe it will be the final bottom of the bear market and a launching pad for tomorrow’s strong bull market.