Long or Short Stocks Is the Question, and Here's the Answer
It's only natural for traders and investors to pull some money off the table or short at these levels.
Stepping back seven days and looking at the overall stock market, my firm has seen a substantial drop in prices across the board. A ton of stocks have formed their first impulse thrust to the downside, which is typically what happens when a stock market is in a topping process (Stage 3 Distribution). The type of damage we have seen cannot be fixed overnight. This will be a process if it is to resolve to the upside ,and price action will remain wild (volatile).
The odds from a technical analysis standpoint -- using price, momentum, cycles, volume, and moving averages -- point to lower prices still to come. Actually, they point to another 5% drop from the current level.
Major Points to Be Aware Of:
1. The 20-day simple moving average is crossing below the 50-day SMA. The last time this took place, it triggered a 5% drop in the S&P 500 (INDEXSP:.INX).
2. Price has bounced for three consecutive days. This typically puts the odds in favor of a pullback.
3. Price bounced and hit its head on the 20-day and 50-day moving averages on Thursday (RESISTANCE).
4. Market time cycles are in a decline phase, meaning that there will be a negative bias, and sellers will be actively pulling price lower on bounces.
5. The major long-term chart looks favorable for a bear market to start; this bear market may last 12 months. If so, this is just the beginning of some scary yet highly profitable potential trades in the coming year. Stocks fall three to seven times faster than they rise.
Daily S&P 500 Trend and Analysis Chart:
Long-Term S&P 500 Trend Chart:
Bearish S&P 500 Price and Volume – 60-Minute Intraday Chart:
Looking at these charts from a long-term, intermediate, and short-term basis, the odds are favoring lower prices. Being short stocks or buying inverse ETFs is the current play for the market. But analysis and trends are subject to change depending on price and volume action each week. Do not get your heart set on the big picture outlook of a year-long sell-off. That could prove to be dangerous. We take this market one bar or candlestick at a time and trade based on current short-term analysis.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers 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 recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions 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 disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.