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AEGEAN
CAPITAL
GROUP INC.
WEEKLY REPORT FOR WEEK ENDING 5-30-08
Page 8 of 9
SUMMARY:
Last week (5-23-08)
we said:
"The SP couldn't close
-decisively- above 1425, and it turned back down closing the
week at 1376. At the moment, the larger picture remains
still bullish -see chart below- unless the SP violates
channel support and closes below 1320. Next week the two key
support levels to pay attention to are: 1369, and 1348. We
need to see how the SP negotiates with support at 1369, and
then re-evaluate from there."
(5-30-08) The SP held
channel support at the 1369 level and reversed to the
upside. Consequently, the rising channel is
still intact, and thus, the
short-term trend
remains bullish (see chart#1 below).
Going forward, the SP needs to clear minor resistance at the
1405, if it does, then the next upside target is
1425-1430. Most indicators are rising, and some
are even modestly positive, which implies that the technical
condition of the market may not be great, but -on balance-
it is a bit more positive than it is negative. Therefore,
in the absence of a negative exogenous event that will
change the present dynamics, the SP ought to be able
to clear resistance at 1405, and then rally up to the
1425-1430 level -at that point, things can get very
interesting in a hurry (read additional comments below
chart#1)
CHART#1
In the chart below it can be seen very clearly that this
year's rally off the March lows -so far- has been
remarkably similar to last year's rally off the August
lows. First, notice not only the almost identical rising
channels, but also, the almost identical price patterns.
Second, notice that in both instances, the SP a) rallied for
roughly two months, b) it gained 14.6%, and then
c) it re-traced 38.2% of its gains. Last year, after
re-tracing 38.2% of the advance, price was unable to
move higher, the rally failed, and eventually the SP made
new lows.
Keep in mind that just because the two rallies have been
almost identical -so far- it doesn't necessarily mean that
the final outcome will be identical as well.
If the bulls are right in their belief that the bear market
is over, then -in all likelihood- the similarities between
the two rallies will end within the next few days. If that
turns out to be the case, one would expect that over
the next 2-3 trading days the SP will overcome
resistance at 1425/1430, and then, over the following 10-15
trading days it will rally back up to channel resistance in
the 1465-1470 zone. On the other hand, if the bears are
right in their belief that the bear market is not over yet,
then -in all likelihood- the two rallies will turn out to be
similar also in their failure. If that turns out to be the
case, one would expect that over the next 3-5 trading days
the SP will fail to rise above the 1425-1430
resistance level, and then, over the following 15-20 trading
days it will violate channel support by closing below 1350.
CHART#2
In summary, the chart above indicates that
there is a "conflict" between the intermediate and the
short-term trend. The intermediate-term trend is
bearish (see red declining channel) but b) the
short-term trend is bullish (see black rising channel)
Moreover, the chart also indicates that -in all likelihood-
the "conflict" will be "resolved" within the next 5-10
trading days. Either the intermediate-term trend will
prevail and the rally off the March lows will be aborted,
or, the intermediate-term will be negated, and
the rally off the March lows can continue for another 3-6
weeks. At the moment, the technical readings for
equities indicate that the odds are modestly in favor
of the bullish outcome. However, when we look at
the credit markets we see several signs
indicative of continuous deterioration, which lead us to
believe that the odds regarding the equity markets
ought to be modestly in favor of the bearish outcome. For
example, credit default swap spreads have widened
considerably in the last two weeks, some have
risen to their February levels, suggesting that there
is more trouble ahead, not less, as many equity enthusiasts
believe. Therefore, if the equity markets do move higher in
the near future, investors/traders may want to consider
enjoying this particular ride by staying
"under-invested."
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Biography:
Mr. Ike Iossif is President and Chief
Investment Officer for Aegean Capital Group, Inc.,
a European based investment research and asset
management company. He has been in the business
for 16 years and he has held various positions
such as research analyst, equities/options trader,
portfolio manager, and market strategist. He has
been "Featured Advisor" in Timer Digest
publication (July 16, 2001 edition) and he has
been ranked among the "Top Ten" market
timers by Timer Digest. For a complete biography
and his methodology click HERE.
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