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By Jon D. Markman) This is as good a time as any to step back and look at the U.S. stock market over the last 15 years. As followers of my work well know, I like looking at the so-called
Keltner Channels to understand the market's long-term trend.
Invented by commodity trader Chester Keltner in 1960, based on work done by pioneering technical analysts in the 1930s, the Keltner channel is a moving-average band where the upper and lower boundaries adapt to changes in volatility. It gives some good Buy/Sell and Overbought/Oversold guidance for securities, commodities or indexes that trend well, as the major market indexes tend to do.
As you can see in the chart that follows – using monthly bars – the U.S. Standard & Poor's 500 Index rose to the top of its Keltner channel in both 1995 and 2004 near the beginning of big multi-year moves – and continued to hug that top line all the way up.
The 1995-2000 move was so intense that the index spent most of its time above the channel. The 2003-2007 advance was not as intense, so the index rose only to the top line. All dips to the middle of the channel were buying opportunities until they weren't.
If we now fast-forward to the present, you can see that on a monthly basis the big-cap U.S. index has only just reached the middle of its Keltner channel. With daily and weekly bars, this has proven to be a spot where stocks and indexes pause. If they fail, they fail here. But generally speaking, once they have a good head of steam they will keep right on rolling to the top of the channel.
We will know soon enough if this is a pause or the end of the line. But given strong breadth in the current market, plus a lack of significant selling pressure, my expectation is that the major indexes will continue on their way to the top of the channel over the next few months. I will keep monitoring the progress every week and month, however, without any preconceived notions.
Stocks stumbled on Friday, recovering somewhat in the early afternoon before the bears reasserted themselves in the closing minutes of trading. This ended a string of three consecutive up days on disappointing sales from General Electric Co. (NYSE: GE), a worse-than-expected loss at Bank of America (NYSE: BAC), and a slip in consumer confidence. Developing nations saw similar weakness, ending a nine-day rally that was the longest in four years.
