Tuesday, April 21, 2009

S&P 500 Breaks Through Its Recent Uptrend

In the chart above, you can see that uptrend line that I have been talking about. This is the uptrend that has been in place since the March 9th lows. Sometimes it depends on how thick you draw your line, or which points you connect, but in this case I think its pretty clear that yesterday's selloff broke that uptrend line.

As such, the odds have increased that the market could be in for a multi-week consolidation of the recent gains. This would be another change in character for this bear market, considering every other rally has failed and then led to new lows.

The recent rally last for 6 weeks, which is a pretty common time frame for a rally phase to run its course. The market had also reached heavily overbought levels by several measures (breadth, oscillators, % of stocks above 50-day average, etc). For now, it looks like that SPX 875 level that marked the highs in Feb. has acted as pretty solid resistance.

On the downside, we'll have to see where the market find support. If we get a further selloff this week, I want to see the SPX 790-800 level hold. That would be a great sign to get long, and play the range from 800 to 875 for as long as it lasts.

After this overbought condition gets worked off, I am hopeful we will see another push higher. Recall that the early January highs on the SPX were 943, so that is a level to watch for if and when the market can get above that 875 resistance.

Trading comment: Yesterday's selloff was pretty steep, such that I am closer to putting some of the cash I raised last week back to work. On the individual stock side, GS and RIMM look attractive around these levels. On the etf side, I am looking at the IEZ, KIE, and IHI.

long a little IHI


At 1:26 AM, Blogger Celal Birader said...

i'm playing the small caps to the downside

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