While many professional investors, including ourselves, focus on longer term fundamental valuations and economic changes, it would be careless to ignore technical analysis, shorter term, emotional, and momentum side of the capital markets.
Technical analysis is a more pictorial view of the capital markets and attempts to explore and capture momentum and emotional feelings. While it is hard to explain technical analysis in logical terms, just as there is momentum in a football game or tennis match (hard to explain as well), there is also momentum in the capital markets. Key levels, in Wall Street Lingo, “resistance” and “support”, are often more easily observed in technical, or pictorial terms. In our early August 2010 post, we mentioned the 4 minute mile as a break through level for athletes many years ago.
The small equivalent of the four-minute mile in the capital markets today is the recent level shown in the attached chart, around the 1130 level on the S&P 500. Many may be more focused on the Dow Jones Industrial average, which is what most talk about when they say what the markets are doing, but the S&P 500 is a better indicator in our view. While the Dow is well over the 10,000 level, and many may think this is an important level, it is not at this level, as we have a more appropriate level of resistance that has been pierced earlier this week in the S&P 500.
Does this mean it is all clear and we are off to the races?
Not a chance, this recent 4 minute mile piercing, means only the capital markets continue to have a more positive tone, as we had stated in our September 9th, 2010 post, and at this point we need more 4 minute mile piercings. Stay tuned as we end the end of the quarter, confront earnings season, and mid-term elections draw closer, all factors which will affect our future 4 minute mile racers.
Have a Good Day!