Thursday, July 17, 2008

S&P 500 breaking trend lines

In the last 3 days the S&P 500 has broken both the upper and lower trend lines of the declining channel pattern.The lower breakout on Tuesday didn't last, with the S&P closing at the end of the day back inside the channel. Today the S&P broke the upper trend line and actually ended the day outside of the channel.

Despite this seemingly inconsistent behavior, it's clear that the market is working on a trend change. Given the mildly bearish sentiment and money flow numbers, a bear market rally is probably in the cards. However, since the Dow and Nasdaq still have significant trend lines to cross, and since sentiment isn't at the bearish extremes of March '08 or August '07, I'm not completely committed to a rally just yet. One of the most troubling signs is that many people have been expecting either a bear market rally or an end to the bear market altogether - and you know what I think of the majority's expectations.

Tomorrow I will sell 50% of my SDS position and keep the proceeds in cash. I'll sell the remaining half if and when I see more indicators of a breakout bear market rally.


gary said...

Are you going to buy the SSO?

Jody said...

No. A fast and steep crash can occur at any time during a bear market, and SSO is the last ETF you want to be in if that happens.

kurichh said...

thanks a lot sir...i am of the view that more than exotic methods like gann , fibo etc....trendlines serve the best.

Jody said...

I guess some people enjoy day trading, but all of those posts on Google Finance make it look like way too much work.