This week the National Bureau of Economic Research (NBER) provided more evidence about the incongruity of a rising stock market amidst a continued weak economy. In case you did not know, the NBER is the organization that officially determines the beginning and ending dates of economic recessions.

Monday, the NBER Business Cycle Dating Committee released a memo stating that after reviewing data pertaining to the current economic situation, it could not yet say that the upturn in economic activity means the recession is over. In other words, committee members would not certify that the economy has reached the bottom point of this negative cycle. The committee reaffirmed—based on relevant data—that the recession began in December 2007.

The fact that the members of this organization could not yet establish the end of the recession is significant, because it includes many of the nation’s most respected and prominent economists.  Founded in 1920, the NBER is a private, nonprofit, nonpartisan research organization that tries to explain how the economy works. Sixteen of the 31 American Nobel Prize winners in Economics and six of the past chairmen of the President’s Council of Economic Advisers have been researchers at the NBER.

The reason committee member cannot yet say whether the recession is over is because nothing like the current economic situation has ever occurred before. In spite of frequent media comparison to the Great Depression, the current recession is much different in many respects. The elements that caused it are different, the government reaction is different, and the existing financial regulations are much different. Apparently these experts agree that the current economic situation remains precarious and another downturn is still possible.

One thing that can be said for certain about this recession is that compared to recent economic downturns, it is severe and lengthy. According to the NBER, the most recent prior recession lasted eight months, beginning in March 2001 and ending in November of the same year. The recession before that was also eight months, beginning in July 1990 and ending in March 1991. The recession that started in July 1981 lasted 16 months until November 1982.

The quandary facing many investors is whether the stock market can continue rising if the economy is still in a recession. Unfortunately, no one knows the answer. One fact that is not in doubt is that the financial markets have risen sharply even though the economic recovery is still shaky.

Below is a chart of the Nasdaq over the past two years. Technology has been the strongest sector in this recovery and the Nasdaq has outperformed other major indices like the Dow Industrials or the S&P 500.

I’ve added some technical indicators to this chart to help us assess this index’s current situation.

On the top portion of the chart I included 50-day (Gold line) and 200-day (blue line) moving averages (MA). The fact that the price of the index is above both of these indicators tells us something that is fairly obvious: the index continues in a strong upward move.

The three bottom indicators all help determine whether the Nasdaq is overbought or oversold. When an investment is oversold, it means that selling activity has driven the price to a level where an upward rebound is likely. An overbought situation is just the opposite: buyers have bid up an investment’s price to a level where increased selling is likely to occur.

The middle indicator is a relative strength index (RSI). As you can see, it is currently above 80—the highest level it has reached over the past two years. When this indicator is trending above 50 that usually indicates the investment has enough positive momentum to continue an advance. But when it gets above 80 it normally indicates that the underlying investment must slow down.

The bottom section of the chart shows a stochastic oscillator. Like the RSI, when an investment exceeds a reading of 80, it is considered overbought and a downward move is expected.

Finally, the top middle section is a moving average convergence divergence (MACD). This indicator confirms that the index is currently at an overbought situation.

Each of these indicators is positive but at a high level. That means a downturn is likely soon, but it is not necessarily imminent. If the next downturn is similar to those that have occurred over the past year, it is not likely to be a major correction; rather, it could provide a good opportunity to add money to the market at a lower price.

At current levels, these indicators seem to show that this would not be a good time to take new positions in stocks. Patience is likely to reward investors with a better opportunity soon.

F.S.