Bullish signs seen in markets' about-face

Bullish signs seen in markets' about-face
DAVID PARKINSON
From Wednesday's Globe and Mail

May 7, 2008 at 8:26 AM EDT

The upturn in equity markets is fast evolving from a temporary bounce into a full-fledged baby bull, some technical analysts believe.

North American stocks, now seven weeks into a rebound from their March lows, are sending off increasingly bullish technical signals that imply the gains are more than merely a short-term recovery in a bear market. In fact, some technical analysts suggested this week that the Canadian market is already back in bull mode, while the U.S. market is on the verge.
"The strong performance of the past four weeks ... provided further evidence that a new bull market is indeed developing," Ron Meisels, head of Montreal-based technical analysis firm Phases & Cycles Inc., said in a research report.

"Over the past couple of weeks, we have become increasingly intrigued with the possibility that ... the broad indexes could actually break out and run substantially higher," Ray Hanson, technical analyst at RBC Dominion Securities, said in a note to clients.

While the S&P 500's move back above 1,400 last week was seen by some observers as a bullish psychological signal, analysts say a more telling indicator of a burgeoning technical bull market has been the about-face of major stock indexes relative to their key moving averages.
After trading below the closely watched 50- and 200-day moving averages since the end of last year, Toronto's S&P/TSX composite index has traded above both averages for the past month. In the U.S. market, the S&P 500 index has been above its 50-day moving average since mid-April, and yesterday's gain (it closed up 10.77 points at 1,418.26) put it within spitting distance of its 200-day moving average of 1,431.

Mr. Meisels also noted that the markets have established "a clear pattern of higher highs and higher lows," and that they have shown a propensity to shake off negative news - both of which are bullish signs.

The TSX is up 13 per cent and the S&P 500 is up 11 per cent from their respective March lows. Analysts suggested we might see a brief consolidation before the North American markets take a run at the last big hurdle to solidifying a bona fide bull trend: the S&P 500's 200-day average, a major point of technical resistance.

"Short-term data is getting overbought for the S&P and [Nasdaq], and it's likely we'll see more tug-of-war near the 200-day moving averages over the next couple of weeks," RBC's Mr. Hanson said.

"We expect that after a brief consolidation, the next surge should confront this resistance and put the indexes firmly above it," Mr. Meisels said.