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.
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 TheSteadyTrader.com.
The information on this website solely reflects the analysis of or o=
pinion about the performance of securities and financial markets by the wri=
ters whose articles appear on the site. The views expressed by the writers =
are not necessarily the views of Minyanville Media, Inc. or members of its =
management. Nothing contained on the website is intended to constitute a re=
commendation or advice addressed to an individual investor or category of i=
nvestors to purchase, sell or hold any security, or to take any action with=
respect to the prospective movement of the securities markets or to solici=
t the purchase or sale of any security. Any investment decisions must be ma=
de by the reader either individually or in consultation with his or her inv=
estment professional. Minyanville writers and staff may trade or hold posit=
ions in securities that are discussed in articles appearing on the website.=
Writers of articles are required to disclose whether they have a position =
in any stock or fund discussed in an article, but are not permitted to disc=
lose the size or direction of the position. Nothing on this website is inte=
nded to solicit business of any kind for a writer's business or fund. M=
inyanville management and staff as well as contributing writers will not re=
spond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.