THE TECHNICAL LOOK: MORE CORRECTION AHEAD
The technical perspective from Decision Point:
Last week’s breakdown led me to believe that a medium-term correction was just beginning. So far this week that opinion has been reinforced by market action. For example, as of last Friday, short-term indicators were very oversold, and a technical bounce was to be expected; however, the market instead has drifted lower, causing me to assume that the oversold condition is being cleared by a decelerated decline rather than a reaction rally. This is bearish behavior, but there is no technical reason to believe that it is announcing a new bear market, only that bullish behavior will be in abeyance while prices work through the correction.
The weekly-based chart of the S&P 500 shows that the PMO is very overbought and has crossed down through its 10-EMA. It could take a few months to clear this condition by bringing the PMO back to the zero line.
Our intermediate-term indicators are no longer overbought, and they are low enough to support another price bottom; however, I would be happier to see them bottoming in the -150 area.
Bottom Line: I would like to see this correction continue for a few months. Keep in mind that corrections in bull markets do not have to be straight down affairs, rather there can be extended movement to the side and slightly down that serves the purpose of getting internals set for another advance without causing too much price damage.
The most obvious immediate support is around 1030, followed by a series of previous lows going down to 980, which would be the worst case if this correction is to remain in the “mild-to-moderate” category. If prices eventually drop to the area of the support at 870, that would be severe enough to start questioning our bull market thesis.
In the meantime, if prices continue lower, our timing models will start switching from buy to neutral. This could begin as soon as next week.
Source: Decision Point
nice info….
PUt your helmets on. Look for more downside next week (2/1/10) The market internals are ready for a downside accelleration early in the week.IT is always interesting to observe how the market reacts to fundamentals. I’m sure this astute group has noticed the ralloy Pre-State of the Union (typical short covering – always thought it was out of respect to the Pres, just like when both sides of Congress applaude prior to the speech.
When the Market can’t give a pop after the speech, it is telling you that the sellers are confident. Heck the shorts didn’t get squeezed. IF you look at the VIX, you will see what looks like a Bull Flag… BAsed on the VIX being up against resistance it could consolidate and compress in the pennant a bit more but it looks to me for a potential breakout to the upside and if so it is projecting a substantial move down in the overall market. TIme to clean the complacent longs out.
WHile the depth of this “correction” is always a point to ponder, I let the market tell me when it is over. From a fundamental point of view, the Gov is throwing everything but the kitchen sink to preserve their political future but the reflation trade (tire)is gradually going flat.
New low ahead? Who knows. Just go with the flow and wear a helmet.
How about the January Effect?
TPC or anyone else
How about posting investment returns 3mo,6mo and 9mo when we have a DOWN January
S&P 500 Data only.
The January effect is like any indicator…there is merit to it when this phenomena happens something like 75% of the time. But you have to adjust accordingly, and 2009 was a great example of that. What I love is, b/c the January effect was invalid in 2009, the ‘experts’ will come out and say this effect is BS. 75% is hard to argue with..