LONG-TERM INDICATORS SUGGEST THAT A BOTTOM MAY BE FORMING -- OVER THE SHORT-RUN, HOWEVER, A LOT OF MARKET MEASURES AND STOCKS ARE UP AGAINST 200-DAY AVERAGES WHERE THEY MAY RUN INTO RESISTANCE

A MARKET BOTTOM IS A PROCESS, NOT AN EVENT... Global stock markets have enjoyed a nice rally since mid-March. Most U.S. stock indexes have rallied more than 20%. Some foreign stock indexes (like China) have done even better. Certain commodities (like copper) have also enjoyed a strong runup on more optimism about the global economy. I believe that global markets could be in the early stages of a bottoming process. I use the word "process" intentionally. Bottoming is a process, not an event. In other words, it takes time to form. The first sign of a market bottom is "positive divergences" in weekly indicators and some improvement on monthly charts. We've already seen that. The weekly bars in Chart 1 show weekly MACD lines turning positive during the first quarter while remaining well above their November low. The monthly bars in Chart 2 show the 14-month RSI line trying to turn up from major oversold territory below 30. A strong rally is the first sign of a potential bottom. A bear market still exists, however, as long as major price indexes (like the S&P 500) remain below their January highs and their 40-week (200-day) moving averages. Once that initial rally has run its course, an inevitable setback usually occurs which retraces most of the previous advance or retests the previous lows. What happens from there will help determine if the recent rally is the first part of a bottoming process or just another bear market rally. Either way, the short-term uptrend may be nearing completion and looks vulnerable to profit-taking.

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LEADERS HAVE ALREADY REACHED RESISTANCE BARRIERS... A second reason for optimism is relative strength in groups that normally lead at bottoms that include consumer discretionary, financial, and technology stocks. We've seen that as well. As I showed on Tuesday, however, a number of those market leaders (including group indexes and individual stocks) have already reached potential resistance barriers at their January highs and/or their 200-day moving averages which include Intel (Chart 3), the SOX Index (Chart 4), and Retail Holders (Chart 5). [Other indexes in a similar position include Consumer Discretionary and Material SPDRS]. Decisive closes over those resistance barriers are needed to signal a major upturn. It seems doubtful, however, that such an upside breakout can occur in the face of short-term overbought readings. The main point of this message is to show how many other markets have reached potential resistance near their 200-day lines and/or their January highs.

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COPPER AND AUSSIE DOLLAR NEAR 200-DAY LINES ... I wrote earier in the week that two markets that should lead to the upside at a major bottom are copper and the Australian Dollar. Copper is viewed as a measure of global economic strength. Commodities usually rally in the face of a weak U.S. dollar and strong foreign currencies. In a global recovery marked by rising commodity prices, commodity currencies like the Aussie Dollar are market leaders. Both markets have had strong rallies during the first quarter. Chart 6, however, shows the Aussie Dollar just below its 200-day line and struggling with its January high, while its daily stochastic lines are in overbought territory over 80. Chart 7 shows copper having reached its 200-day line while its 14-day RSI line is in overbought territory over 70. The stock with the greatest exposure to copper is Freeport McMoran Copper & Gold. Chart 8 shows FCX also nearing potential resistance at its 200-day line, while its RSI line is showing "negative divergence" from overbought territory. This would be a logical spot for all of those markets to run into some profit-taking. That would be consistent with a pullback in global stock markets.

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BRAZIL AND INDIA TEST 200-DAY LINES ... On Tuesday, I showed China iShares (FXI) trading over its 200-day average (Chart 9). Unfortunately, none of the other big emerging markets have confirmed that upside breakout. Charts 10 and 11 show Brazil iShares and the MSCI India ETN still below that long-term resistance line. Chart 12 shows Emerging Market iShares (EEM) doing the same. I find the relatively strong of those large emerging markets to be an encouraging sign for the global economy. My main concern over the short-run is that they may run into some profit-taking around their 200-day lines.

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% NYSE STOCKS ABOVE 200-DAY AVERAGES IS RISING ... One of the ways to determine the major trend of the stock market is to chart the % NYSE stocks that are trading above their 200-day moving averages($NYA200R). In a bull market, it stands to reason that most stocks (more than 50%) should be in that position. That's not the case at the moment. Chart 13 plots that measure for the last three years. After peaking in mid-2007, the $NYA200R dropped to its bear market low last October. Since then, it's been rallying. As of last night, it reached 18%. That means that 18% of big board stocks have already cleared their 200-day averages. Although that's the highest level in six months, it's not enough to signal a major uptrend. For that to happen, the first thing needed would be an upward break of its major downtrend line extending back two years. Historically, a move over 50% is usually a minimum requirement for a new bull market. That's approximately where the bear market rally of last spring stopped (black arrow). The black line in Chart 14 plots the % of NYSE stocks trading over their 50-day averages. That shorter-term line fluctuates between oversold territory below 20 and overbought territory over 70. At the moment, that line has reached very overbought territory at 85%. That's another sign that the recent upturn in stocks may be overdone.

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