Market Update
11:34 UTC 28 Oct 2009 
6 Comments
Obviously the market has been changing its tune lately from being overly optimistic and applauding all shapes and sizes of earnings to now dumping on most news even when it could be construed as a positive. This only further proves that the market reaction is what matters not so much what the numbers are that come out from an economic or earnings perspective. For example the market had risen 60% from its lows on better economic and earnings data even though if you take a step back and look at the big picture the numbers are still relatively bad.
So maybe the market may finally correct now. This correction has been touted since the week after the “bottom” (March 6th). So in a lot of people’s minds this is looooong overdue. To us it doesn’t matter what people think only what the market thinks. This is why we were able to catch a large chunk of the rally from March. Recently the market has head faked us and others into going on the short side only to reverse and cut out a portion of our year-to-date gains.
So will this time be different? We have been short since this past Monday when the downtrend was confirmed with an ugly midday reversal. So far it has worked out well, but could this be another head fake? Currently we are right on the 50 day Moving average of the S&P 500 (SPY) and this is where the bulls usually flex their muscles. But some items to note for the bearish stance:
- Leading stocks such as the financials (XLF) and small caps (IWM) have broken down through their 50 day moving averages already.
- Below the 50 day Moving average on the S&P 500 there is very little in terms of support. (Support chart below)
- Long term technicals are overbought and have potential for large correction (Monthly chart below)
Charts below on the full post
6 Month daily chart of SPY with 25, 50, and 200 day moving averages.
Marked up 6 Month daily chart of SPY with 25, 50, and 200 day moving averages. Marked with Resistance and support levels. Notice how past the 50 day moving average there is very little support on the SPY. About a 8.5% correction to the next support level at $96.
Long term chart. 3 year monthly chart of SPY with 25 and 50 month moving averages. Notice the overbought condition on the stochastics at the bottom. These levels have not been seen since the 2007 top in the market.
Great analysis… One possible launching point for the bulls tomorrow is the GDP number coming out.
This may result in a nice bounce to short more into.
Next week will be a big week as well with Auto Sales, Fed Rate Decision, and Unemployment numbers.
sounds like a bumpy ride
Knowing this market they could say that Halloween candy sales are 2% higher than last year and the market will roar to new highs! ..ha
Well there you go a bounce off the GDP.
Now the question is will it continue tomorrow… Im guessing probably due to the fact that its the end of the month and the Michigan Sentiment survey will probably be positive due to its lagging numbers.
Looks like volatility is back in action!
Lots of air below this support level on SPY
Well it held on and got the bounce… now lets see it approach that long term resistance level on the monthly chart… around $112