Update on the S&P 500
I'm not going to spend a lot of time on this post because I've already exceeded my limit for the week but I wanted to put up an interesting chart. Well, maybe more appropriately an ominous chart.
Below is a chart of the S&P with a trend line going back to the Great Depression. Notice how in late 2003 through 2005 the S&P gravitated towards that trend line first acting as resistance and then support. We have now fallen all of the way back to that trend line since first touching it in 2003. Here is where short covering and the associated buying effect of doing so started within the last few weeks. The second chart shows short covering or buying (same thing) first started to develop around July 9th when buying pressure went positive.
There is a compelling position to be had that markets often first bounce off of support or resistance trend lines and then after a failed counter trend move eventually move through the trend line. So, we might expect a failed attempt to move higher followed by a push through this trend line. Then another failed retesting of the trend line after it has fallen through then another push lower. Whether these counter trend moves last days, weeks or months is speculative. But, I am dubious of any claims to divine these moves but those better at talking than trading.
One such popular prognosticator boldly proclaimed today this rally was the real deal and initiated a long position in the banks this morning. That's interesting because he did so as we are now as short term overbought as at any time in the last six months. Therefore, we have some reason to believe next week we will start a downward journey of retesting the lows set in the S&P last week. Then we shall see how much higher buyers want to bid this market. Secondarily, I'm quite confident the economic peak for the S&P was the May/June of 2006 top. Maybe I'll post more on that statement and what I mean by that in the future as I think the topic is very interesting. But, if that is the case, we really haven't even started a significant correction. How far are we from the mid-year 2006 high?
In other words, many true tests for this market are likely yet to come.
Below is a chart of the S&P with a trend line going back to the Great Depression. Notice how in late 2003 through 2005 the S&P gravitated towards that trend line first acting as resistance and then support. We have now fallen all of the way back to that trend line since first touching it in 2003. Here is where short covering and the associated buying effect of doing so started within the last few weeks. The second chart shows short covering or buying (same thing) first started to develop around July 9th when buying pressure went positive.
There is a compelling position to be had that markets often first bounce off of support or resistance trend lines and then after a failed counter trend move eventually move through the trend line. So, we might expect a failed attempt to move higher followed by a push through this trend line. Then another failed retesting of the trend line after it has fallen through then another push lower. Whether these counter trend moves last days, weeks or months is speculative. But, I am dubious of any claims to divine these moves but those better at talking than trading.
One such popular prognosticator boldly proclaimed today this rally was the real deal and initiated a long position in the banks this morning. That's interesting because he did so as we are now as short term overbought as at any time in the last six months. Therefore, we have some reason to believe next week we will start a downward journey of retesting the lows set in the S&P last week. Then we shall see how much higher buyers want to bid this market. Secondarily, I'm quite confident the economic peak for the S&P was the May/June of 2006 top. Maybe I'll post more on that statement and what I mean by that in the future as I think the topic is very interesting. But, if that is the case, we really haven't even started a significant correction. How far are we from the mid-year 2006 high?
In other words, many true tests for this market are likely yet to come.
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