Stock Market At A Critical Juncture

By: Kingsley_Anderson

So much for a boring market. The bears certainly arrived on the scene this week. Although some bulls finally showed up, too, was it enough? The financials continue to weigh heavily on the market. The thought of nationalizing banks and destroying shareholder equity is apparently a most unsettling prospect for investors. The administration promises to provide more information regarding its methods to save the banks, but will the clarity be enough to satiate the masses and save the markets?

The market is at a critical juncture. In particular, the DJIA is in a great deal of trouble. A Dow Theory sell signal occurred on Thursday after the DJIA closed below its November low. The news of this occurrence was trumpeted by the media outlets. The detractors of the theory claim that considering these indexes are based on only a handful of stocks in the DJIA and Dow Transportation Index, the theory does not give a true indicator of market weakness/strength.

While this may be the case, how often is it that the DJIA and S&P 500 diverge? Most of the time, both indexes move in an almost lockstep fashion. Personally, while I would not hang my hat on Dow Theory, I would also not ignore this ominous signal; it is certainly something to be considered. Currently, the DJIA has support in the 6700 area and faces resistance in the 7500 area.



For the S&P 500, it is make or break time. The million dollar question is “was Friday's rebound a successful retest?” The index came within several points of the November low. Volume was also extremely strong as it was an options expiration day. The S&P 500 has support at 750 and faces resistance at 800.

The VIX does provide some hope. On Friday, it could not hold above 50 and finished at 49.30. As stated several times, it has been caught in a downtrend ever since October. Slowly but surely, fear has been leaving the market.

There is more evidence indicating a possible market bounce. At this time, only 16.58% of NYSE stocks are above their 50 day moving average. This constitutes an oversold reading. Also notice the divergence that has occurred since October. The gradual uptrend indicates underlying strength within the market.

Monday's action should give us an indication whether the S&P 500 retest will hold. Remember, now is not the time to be a hero and wildly throw money at the market. Losing your hard-earned cash does not make you “tough” or show you have “guts.” If you think the market “just can't go lower,” think again. As always, risk management is the key to success.

Positions: None

By Kingsley Anderson

http://tradethebreakout.blogspot.com

Kingsley Anderson (pseudonym) is a long-time individual trader. When not analyzing stocks, he is an attorney at a large law firm. Prior to entering private practice, he served as a judge advocate in the U.S. Army for five years and continues to serve in the U.S. Army Reserves. Kingsley primarily relies on technical analysis to decipher the markets.
Kingsley's website is Trade The Breakout (http://tradethebreakout.blogspot.com)

Copyright © 2009 Kingsley Anderson - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.