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Technical Perspective After a Tough Day in the Markets


The market is like a constantly moving target, which is difficult enough, but the factor left out by most analysts is that we ourselves are moving too.

Yesterday's battle left much blood on the streets. It is exactly because of days like yesterday that we a) trade/invest in multiple time-frames and b) are open to entirely change our outlook each and every day if need be. Less flexible, stubborn... heck I'll just say it, academically snooty folks don't play this way because their 'models' and ego tell them when 'stuff' can't rise or fall any more than it already did. Right, and then there are the margin calls, which as usual hit at 3:30PM ET yesterday and took the market -- already down four% -- another 100 basis points lower at its worst levels.

The market is like a constantly moving target, which is difficult enough, but the factor left out by most analysts is that we ourselves are moving too. Picture yourself standing on a moving platform having to jump to another moving platform. The one you are standing on is your interpretation of what the market is currently doing. The trick is to balance your platform as much as possible so that it doesn't move significantly. We must be open to all possibilities in the market at all times and if we constantly change our 'bias' and let emotions creep into our analysis, it makes your platform move that much more, i.e. makes it more difficult to hit your target.

Now that the S&P500 has sold off almost 11% in nine trading sessions, where do we stand and what do we do? I focused on the weekly chart of the SPX last night because it serves as a key big picture map to the path we want to take. We have revised our own 'relief rally' target (if and when) from 1340 down to now more like 1250-1275 over the past week or so. That's the moving target part. In terms of the platform we stand on (our interpretation), we could now easily either say that stocks are undervalued and must be bought blindly, or sell everything in sight, buy a chicken and a cow and learn how to knit. But neither stands will do us much good because no one knows where we are heading next.

Let's look at some charts to put everything in perspective and allow us to remain neutral.

On the weekly chart the S&P 500 has broken the major uptrend in place since the 2009 lows. That's significant and telling. There's no bias here, but should we rally some in the coming days/weeks we would be better sellers again at the very latest around the 1300 mark.

The financials as measured by the XLF are nearing an important area of support dating back to the second half of 2009.

Gold yesterday was being used as a source of liquidity as margin calls hit and funds liquidated what they 'could' as opposed to what they 'should.' On the charts of the SPDR Gold Shares (GLD) we got an outside day right at the all-time highs. This doesn't mean gold cannot rise further, it's simply something worth noting for now.

More broken weekly charts can be found in oil, where similar to the S&P 500, the uptrend since early 2009 has now broken. As Toddo often points out, lower oil prices are not necessarily a positive catalyst as it may signal a weakening economy.

On the risk aversion front, note the 10-year U.S. Treasury futures ready to break through the late 2008 highs. That's telling and very much fits the theme we've talked about for so long -- Treasuries are still in a bull market.

The broken weekly charts and continued rally in the risk aversion trade speaks for further weakness in coming weeks. Very near-term, however, that oversold/relief rally may materialize soon. Longer-term investors may continue to sell the rallies while quick and nimble traders can pick their spots for risk-defined trades in either direction.

Editor's Note: For more great content from Serge Berger, please visit
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No positions in stocks mentioned.

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