The SP 500 index is caught between two trend lines that are the dominant technical indicators right now for this market. If either gives way, it will point the direction of the next major swing.
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All the best,
Adam Hewison
President, INO.com
Co-creator, MarketClub
Is the S&P 500 running out of gas?
After a spectacular rally from the lows seen last month, the S&P appears to be running into overhead resistance.
Is this the pause that refreshes, or is this the pause that reverses the market back towards the lows?
I have said for some time that I was not that confident that this rally would continue as our long-term "Trade Triangle" remained in a negative mode. In my new video I outline the key areas that I believe will shape this market in the coming weeks and months.
I'm not sure if you've had a chance to check out any of the material from Bill Poulos from Profits Run, but he's normally right on with his techniques and analysis...almost as good as Adam!! He's a big fan of the video education, as we are, and today I've asked him for a favor. That favor is to come and teach us a little about how we ride these markets more effectively...and allow us to watch his 6 part video series on how to become a more independent trader. The videos can be watched HERE.
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Today I wanted to bring to light a major shift that has occurred in the markets. One that isn't getting enough attention, but has the capacity to continue wrecking people's portfolios.
That shift is a movement away from traditional buy and hold investing and toward technical trading.
If you've watched the markets in recent weeks you already know that both the Dow and the S&P500 have traded in a very consistent but narrow range.
And, if you've been watching since late last fall when the markets suffered their worst fall since the Depression era, you would know that the people who are in control of their trading actions are the people less likely suffering from significant drawdowns. Conversely, those who adhered to long term investment strategies are looking at extreme timelines just to recover to a break even level.
Today I'd like to share with you where the shift is happening, and what you can do about it:
In the longer term investing model, money in the market would typically stay 'put' for several years (usually in the range of three to five years). That same money RIGHT NOW is moving in mere DAYS.
That suggests more traders using technical indicators to drive their actions in the market and fewer relying upon fundamental indicators. As well, the speed at which the market prices are moving dictates the need for AGILITY -- traders need to be doubly aware of their risk management practices and completely UNEMOTIONAL about executing them.
What you MUST do:
Get control right now of your portfolio by learning to become an INDEPENDENT trader.
I've found some individuals aren't prepared for this, because they're what I call "DEPENDENT" traders.
DEPENDENT traders rely entirely on the media to "spoon feed" them "market info" and "hot tips"... they still think holding on to a stock and praying for it to go up is the way to go... and they don't have a plan they can follow regardless of what the market does.
To help more traders get on the INDEPENDENT express, I recently re-released my 6-part COMPLIMENTARY video series which will help people to adapt and use a new approach to give them the flexibility required to prosper in today's markets.
I believe that right now is the time to attack the market, not run away from it. Even though the economy is in recession, you can prosper -- and in the complimentary video series, you'll learn 5 'recession-proof' trading attack plans you can execute RIGHT NOW to enhance ANY trading method at ANY time, in ANY market.
Watch the videos HERE
The bottom line, however, is simple: the markets have changed and those who adapt and change with the markets have the greater opportunity to prosper. Those who fail to adapt will likely be left behind.
Bill Poulos
Today's guest blogger comes from the popular MYSMP.com site and it's creator Kunal Vakil. Kunal is a man who is plugged into the market literally!! I asked him to give his unique perspective on the market...and it's symmetry.
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First off, I want to thank Adam and Trader's Blog for allowing me to post my materials on Trader's blog.
Today, I want to share my thoughts on the S&P 500 and where I see it heading before this bear market is over. And, yes, we are in a bear market. Not only has the Dow Jones already fallen 20% off its highs of last year with the S&P 500 nearly there as well, but the price action in the broad markets has been that of a bear market. It is typical to see sharp sell-offs and ferocious bear market rallies which make even the bears capitulate, all before the market begins a move lower again. Big volume down, and low volume up. This is precisely what we have seen since the top at 1576.09 on the S&P back in October of 2007.
Now, let's talk about the culprit a little. We know that the banking index has been decimated with the exacerbating write-downs and credit quality issues due to the unscrupulous practices of many bankers and loan brokers. Many banks have lost over 50% of their value, and the beating continues. As we review the daily charts of the major banks, one can easily see a pattern that is definitive of a bear market, lower highs and lower lows. From looking at these charts, it is my firm opinion that the worst is not over yet. We are probably half way through the write-down cycle. Now what does this mean for us as traders?
Well, here is what I am watching very carefully. I want to see some of the major banks (ie. C, LEH, MER, MS, GS, FNM, FRE) start to show signs of strength relative to the entire market. I want to start seeing them make higher lows and higher highs. I want to see a base building process develop within these stocks. I want to see volume lighten up to the downside and increase to the upside. When these developments start to take place, we can start to look for long entries in these stocks. Is the US banking sector going to fall to 0? NO!, but don't try and catch a falling knife, stay patient. Remember, Cheap can always get cheaper...and it has.
Moving back to the S&P 500, I want to now walk you through a few charts that will illustrate where I think this market is headed by the Sept./October timeframe. This period historically provides some dynamite buying opportunities and it looks like this year wont disappoint.
On longer term charts, especially index charts, Fibonacci retracements and extensions offer good points of support and resistance. Here you can see that the S&P has a major support area at the 1171 area. I will show you why this is a very important level.
Our next chart is another weekly chart of the S&P, however, this time notice the Fibonacci extension. Notice the initial move off the top and the subsequent rally off that reaction low created an extension target between 1353 to 1248. Notice how the 1.382 and 1.618 levels held the two lows set in January and March and the market showed its weakness by extending down to the lower end of that zone.
The next chart shows you the current extension that we are watching now. It starts with the December 2007 highs going down to the March lows and the retracement up is at the May highs around 1440. Now, notice the extension targets. The 100% extension takes us down to 1173.65, very close to the 50% Fibonacci retracement level in our first chart.
One final point in terms of symmetry that I want to make here. Back in 2003 when we were looking for a breakout in this market, the 1165 to 1175 range was a key pivotal area we watched. It represented the neckline of a massive W bottom, which some would call an inverted head and shoulders. This area is going to provide massive support on the way down.
All things considered, I am looking for another 100 point drop in this index before I can see a true bottom being put in. Remember, you want to watch the leaders on the way up and the way down. The banks have been providing that leadership and are showing no signs of letting up. Therefore, we are not bottom picking here. The speculative soul in me believes that the shoe is going to drop with one of the big banks out there. Time will tell but until then, be safe and protect your downside risk.
All the best,
Kunal Vakil
MYSMP.com
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