Of course I am being facetious with the article title, but it is sublimely ridiculous how many think that President Elect Obama will be able to reverse the economic tsunami overnight, that has been years in the making, due to Wall Street greed and a complete lack of oversight by the U.S. Congress.  At any rate, our new president has his work cut out for him.  Let me now get back to addressing topics for which I am qualified.  Where do the markets go from here?

In the daily chart of the S&P 500 below, it appears that the six week advance off of the November low has concluded.  Recall the warning bells that were sounded over the lack of volume and choppy pattern during that rally, which gave it a decidedly corrective appearance.  Last week's selling saw the greatest ease of movement on the downside that we have seen since prices came into the November 21 low.  Last week's 'heroic' rebound as Dow 8000 was 'defended' has the bulls salivating again as the Wall Street spin machine is once again cranking up to declare that the worst is behind us.  Is it really?  

The media will look at Friday's gains and try to convince you that the market cheered the news that the federal government is now a majority shareholder of Bank of America, that Citigroup lost over $8 billion and is being split up, that Circuit City is doing a final liquidation, California does not have the money to pay out tax refunds, Hertz is cutting 4,000 jobs, etc. How on earth can that be construed as positive?  If you base your investments on media hype and opinion, you get what you deserve.  Yes I know that the market discounts events 6 - 9 months in advance, but it sure does not look like this rally is for real.  What is the market telling us? 

On the S&P chart, notice first of all that price has once again encountered resistance in the form of its 76 day moving average.  Why 76 days?  The S&P 500 is on a 36 - 40 day cycle where it provides short term change of direction, but not necessarily a change in trend.  Those cyclic reactions allow me to pick a moving average that 'fits' the cycle.  For a longer term moving average, I double the range and take the middle value.  For example - a 36 - 40 day cycle doubles out to 72 - 80 days, so I take the midrange value, or 76.  So as you can see, this moving average provided resistance back in December 2007 (the very left side of the chart) which precipitated the horrific decline in January 2009.  It provided resistance once again in June 2008, August 2008, and now in January 2009.  Also notice how the price action has fallen back into the downward channel that was started in late September 2008.  That is not a sign of strength. 

Now take a look at the middle pane, which contains the NYSE Volume Oscillator.  The pattern that jumps out at me right away is the head and shoulders topping formation in the oscillator.  While the price action during that timeframe was sloppy with a mild upward bias, a clear pattern is seen in the oscillator.  Also note that the oscillator broke the uptrend line it formed from last October.  One can possibly make a case for a weak head & shoulder bottom in price, but the downsloping neckline and the struggle for price to form a decent right shoulder make any talk of a meaningful reversal pattern suspect at best.  That tells me that whatever latent momentum had been behind the corrective move off of the November low has dissipated. 

Take a look at the bottom pane, which is the NYSE advance/decline line, which has been in a nasty decline since June 2008.  It ran smack into its downtrend line off of the June high and could not break through.  One positive though, is how it is holding above its 40 day moving average line.  We will see how that one plays out.

At this point, the weight of the evidence suggests that the choppy, sloppy rally off of the November 21 low has run its course and that the bear may be ready to resume.