Stocks are in the middle of their first consequential correction since last July and many technical indicators have turned short-term bearish. Shorter-term gauges of the trend - such as the 50 or 72 day moving averages - have now turned down and are acting as resistance on rallies. For the longer term technical picture, as long as the S&P 500 can hold above our 980 to 1050 support zone, and we think it will (see last week's Weekly View), the cyclical bull market remains intact. Investors will likely become more cautious the longer this correction lasts, but we point out that in 2004 (a year of economic recovery and fears of Fed tightening) the S&P 500 drifted lower for nine months before the bull market resumed.

David Fuller's view I also mentioned 2004 when posting an earlier issue of The Weekly View on 26th January. Here is a paragraph from my summary on that date:


If there is a parallel with the last bull phase from 2003 to well into 2007, I suggest that it is with 2004, which you can see on the S&P's weekly chart above. If the outlook is worse, perhaps we have more ranging, in line with the slower rate of economic recovery. Meanwhile, all corrections are unnerving for those who hold medium to longer-term positions. However, we should ask ourselves, is there another speculative mania or other credit bubble out there, about to burst, as we last saw in 2000 and 2008? If not, the odds favour another correction, which becomes a buying opportunity in its latter stages, rather than a major peak. Fortunately, there are many more medium-term corrections within cyclical bull phases than peaks which mark their end.

Regarding the unflattering PIIGS acronym mentioned in the headline above, I suspect that the 'who's next?' concerns have been overdone.

Yes, sovereign debt is a big concern. Yes there will be deflationary pressures in the EU countries concerned. However I maintain that Greece and the other most indebted states, if necessary, will be assisted by either the IMF or other EU states, or perhaps a combined effort involving these parties. The real question, I suspect, is how much autonomy Greece and any other rescue candidates will lose in terms of running their own country until this crisis is resolved. Some temporary loss of economic control is inevitable, as we have seen with past rescues. Meanwhile, Greek 10-Year Government Bond Yields (weekly & daily) are a good litmus test and have peaked for at least the near term, following a accelerated (Type 1) top as taught at The Chart Seminar, followed by some right-hand extension evident on the daily chart.