S&P Watch: Time for Real Caution
Market unable to muster any bounce after this morning's drop.
Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial). It's being shared here for the benefit of the Minyanville community.
About a month ago, I showed a flipped-over chart of the S&P 500, which garnered a lot of response -- most of you could see the possibility of a head-and-shoulders top in that flipped-over pattern (translating to inverse head-and-shoulders bottoming pattern in the real SP-500 chart).
I followed that chart with a long note on how support hadn't been materially violated, and -- while it was important to keep that thought in mind -- it's not necessarily prudent to act on it.
Here are the closing thoughts from that note, and I would encourage fellow Minyans to go over it again.
Click here to enlarge.
"So, unless support (as defined by your reality) is materially violated in the major indexes and some key sectors, is taking 'anticipatory short' position a prudent move? Even though the market has had 3 up months after we flagged 6 consecutive down months in the Dow (Sep 2008-Feb 2009), I wouldn't be too eager to go net-short the major market indexes until I see firm signs of cracks developing (I do short weak stocks).
"Shorting at every down tick is like stepping up the fight with a strong combatant in the ring with an expectation to win, every time he sneezes! As I have repeatedly opined, strength rarely ebbs away without a fight.
As always, I remain on lookout for instances of confirmation and divergence to check the pulse of the market."
And has the picture changed? Since I shared my concerns on June 12, the S&P 500 has closed below the 50-day moving average, which is its second visit in 2 weeks from lower highs to that level (the 20-day moving average was a strong support. See the May 29 note on recently turned resistance).
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