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Is The S&P Peaking?
Posted On Thursday, May 13, 2010 at at 4:49 PM by Finance Fanatic
As anticipated, markets remained rather flat for most of the day, that is until a big swarm of selling hit markets with about an hour left of trading to close the Dow over 100 points in the negative. I was a bit surprised by the aggressive move, especially after such a flat day, but the "nervous" end of day selling continues to show the uneasiness of investors. Accompanied with the selling, was significantly more volume than we have seen on buying days.
There still remains a lot of talk about last Thursday's fluke crash. Many analysts are still trying to prove that indeed the drop was almost all related to technology flaws and that there was no "real" selling motivation. That statement is rubbish and, in fact, Thursday's big drop is matching perfectly with technical signs of "topping off" for the S&P.
As you can see from the graph above, the trend almost exactly mimics a topping curve. From the recent highs to Thursdays low, there was about a 12% drop in the S&P. That downward "whip" is the largest contributors to index leveling. Now when we evaluate other data, we see that they too match a level off formation.
If the market is indeed leveling, what we can expect in the short term is a bit of a rally back to recent highs and maybe even beyond a bit. However, following that, markets tend to respond with more frequent "whips" in the market, sending the S&P down even further. Of course, this is speculation based on charts, but the percentages state that indeed the S&P is leveling off. If this does become the case, Thursday's crash was just a warning to investors that the market is sucking wind.
Consumer confidence continues to struggle. In a large, national media poll conducted, it was reported that over 75% of consumers feel that we are still in a recession? Really? But everyone is saying we are done. The government, CNBC, Tom Hanks, and Cramer are all saying we are out of the recession. So how can this be? This is because, the consumer continues to suffer. Home prices are still declining, health care and energy prices continue to rise, taxes are increasing, and disposable income is still shrinking. In this type of environment, consumers will continue to be on their guard and not be so easily fooled by inflated earnings or a "ra ra" speech from Cramer.
Friday should be interesting. I'm sure market movers did not like that selling close today. Lately, Friday's have been trending on the sell side, however, often we see open with a bit of a buying spike, only to trail down by the end of the day. Once again, I plan on entering some short positions early morning if this is the case. I will be exiting these positions by close, only to pick up some longs just before close. Lately, it has almost become automatic that Mondays open green. Of course, I am a bit worried of weekend news in relation to the debt turmoil in Europe, however, I will maintain strict stop losses and roll the dice a bit. Happy Trading.
The rally has a ways to go.
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