Jul 7th, 2009
by admin.
Well, it’s a trifecta! All three major indexes, the Dow, the S&P, and now the Nasdaq, are below their 50 day moving averages. The tech-heavy Nasdaq was the final holdout, and it took most of the day to lose its 50, but when it did, it did so convincingly. [Click the Image to Enlarge]
With all the indexes below their 50s, there’s not much support left for the Bulls to cling to. The S&P has its venerable 875 level, but I fear it’s only a matter of time now before that is breached as well. Once 875 goes, so goes the whole market.
The catalyst for the poor action today was the Obama administration saying that another stimulus package will be necessary, which spooked investors. I’m having a hard time understanding why they would think another stimulus is what we need, when the first one had no effect, except to add to our already record deficit.
Yesterday I showed the VIX holding its long-term downtrend line, but building on a massive positive divergence, with the potential for a huge bullish move looming. I said it could break in a day, or it could break in a month. Well, it was the next day. At least I got the range correct. It remains to be seen if this is the beginning of a true breakout, but at this point you have to believe that it is. [Click the Image to Enlarge]
The Head and Shoulder patterns on the Dow and the S&P has started to play out by breaking below their respective necklines. I first showed those on my Sunday Is the Rally Over? post. The Head and Shoulder pattern is a classic topping pattern, and often caps big rallies. So it appears this rally was in fact a Bear market rally, not the start of a new Bull market. Although there are plenty of pundits out there that still think there’s more upside in store.
So, unless there’s a spectacular turnaround in the next two days, this market is going down. I would wait for the S&P to lose 875, then look for shorting on strength.
