Money in Motion

12/21/2009 3:26 pm EST

Focus: MARKETS

Carter Worth

Chief Market Technician, Sterne Agee

The S&P 500 has now traded 23 sessions in a row without a deviation greater than 2%... the longest streak since July 2007. See the red circle drawn below.

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Source: Oppenheimer Asset Mgmt. and Thomson Reuters Inc.

And it is not random that the market is behaving this way here at the 1100+/- level. For 1100, as all will know, is a level of considerable overhead supply... and it is just that—supply coming into the market—that is preventing the S&P 500 from moving higher day to day.

The five-year chart [below] depicts the significance of the 1100+/- level in relation to the down trendline in effect since the market's all-time high of 1579.09 reached in October 2007.

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Returning to the daily chart of the SPX, the action of the past several weeks is "on schedule" if you will.  Specifically, we first reached the 1100 level on Monday, October 19th, touching a high of 1100.17 and closing that day at 1097.91. Eight weeks later (38 sessions to be exact), we're now at 1106.41 (Friday [December 11th’s] close)... 8.5 points higher than the 1097.41 close of Monday, October 19th.

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In fact, the performance of the S&P 500 as of right now in QIV... compared to where we were at the same point in QII and QIII... is informative. 

On June 12th, fifty-one sessions into QII, the S&P 500 was: +18.6 %

On September 11th, fifty-one sessions into QIII, the S&P 500 was: +13.4 %

On December 11th, fifty-one sessions into QIV, the S&P 500 is: +4.7 %

The market's total gain for QII (April 1—June 30) was: +15.2%

The market's total gain for QIII (July 1—September 30) was: +15.0%

For QIV to "match" the performance of QII and QII, the SPX will have to appreciate to 1217 by year end... a gain of 15.1% from the quarter's starting price of 1057.08.

In a word, the supply coming into the market is preventing the S&P 500 from moving higher. And while it is true that at some point enough supply will be out of the way that the market can move higher...that time is not now, in our view.

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What's more, there is always the prospect that so much supply comes into the market that the market is overwhelmed and is pressured lower... that supply actually exceeds demand.

For now, supply and demand are matched off almost perfectly... representing the first time supply has equaled demand since June (recall the June—July -7% correction in the SPX when supply not only equaled but exceed demand).

So what to do?

Do what's always right to do... be in the right patterns and let the market take care of itself.

[Below] you will find a handful of other indices (with lines drawn) depicting where there's overhead supply in relation to where we're trading now...

Trade well,
—Carter

Click here for more from Money in Motion

This article was originally published on December 14 and was reposted with permission from Carter Braxton Worth.

Dow Jones Transports… daily chart
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Dow Jones Transports… weekly chart
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Russell 2000… daily chart
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Russell 2000… weekly chart
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NASDAQ Composite… daily chart
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NASDAQ Composite… weekly chart
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S&P Mid Cap 400… daily chart
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S&P Mid Cap 400… weekly chart
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S&P Small Cap 600… daily chart
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S&P Small Cap 600… weekly chart
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Philadelphia Semiconductor Index… daily chart
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Philadelphia Semiconductor Index… daily chart
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BUY LIST – “Reaction” Buys

It’s important to note that at certain times in the market entire industry groups are at ‘identifiable’ Buy or Sell junctures. For instance, last week’s “Bearish-to-Bullish” Reversal Buy list featured Aetna (AET) and United Health (UNH) and the “Conventional” Buy list featured Wellpoint (WLP). The point being that the entire Managed Care group was judged to be at an important inflection point.

This week it is worth noting the number of insurance stocks appearing on the Buy list. Note the inclusion of Allstate (ALL), Horace Mann Educator (HMN), Lincoln National (LNC), Marsh & Mclennan (MMC) and Unumprovident (UNM). The conclusion, of course, that the group has excellent rebound potential here and that each individual stock is headed immediately higher.

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