Stock Market Melt Up: November 1998 or December 2008?

By Global Macro Monitor On Oct 28, 2011

By Global Macro Monitor

Stunning! The S&P500 at its high today was up 20.3 percent from the October 4^th intraday low of 1074.77. We’re talking the S&P500, not the Brazilian BOVESPA or Hang Seng Index! This kind of initial move in the S&P500 in just 17 trading days has happened only six times in the past sixty years.

Today’s move blew through the yearly breakeven level of 1257.64 and the 200-day moving average at 1274, which is now a huge technical support level if the market is going to continue to run.

The question is where to for year end? Is this the November 1998 melt-up after the Russian debt default and failure of Long-Term Capital Management or is it the December 2008 head fake before the March 2009 bottom? We’re not sure so let’s go to the charts.

The current S&P is in much better shape than in Dec. 2008 as it is now above the 50, 100, and 200-day moving averages. The slope of the 50-day has turned up and 100 and 200-day moving averages are starting to flatten out.

It’s clear from the 1998 chart that the S&P500 was still in a major uptrend, which can’t be said of today’s market. Interestingly the 1998 20.7 percent 17-day spike started with a similar nasty bear trap.

We’re hearing of big institutional inflows into high-yield bonds, which augurs well for risk and dividend yielding stocks. Our sense is we continue higher as the panic for return really gets going into year end. The 200 and 100-day are now important support levels. The market is overbought and should consolidate and the under invested will be buying the dips.

The Euro plan? Lots of unanswered questions, short on detail, and not a long-term solution, in our opinion. But Mr. Market is running over those who wait for the perfect solution and just flattening the macro bears.

Remember, John Bull can stand many things, but he can’t stand two zero percent and will trump almost any rational discourse of the fundamentals once he takes control of the market. Always with a stop, comrades. Good luck!