Friday, August 22, 2008

Which way will it go?

The market hasn't yet found a solid trend, but I think we'll know more early next week. The lower support line which was broken on Tuesday has intersected a potential declining tops line today.


If the S&P 500 rises through the declining tops line, then a medium-term rally will probably follow, with the old lower support line becoming an upper resistance line. Otherwise, if the new declining tops line holds next week, then that would confirm that a new downward trend has begun.

Regardless of which direction the market turns, I don't expect it to move very far one way or the other. With the exception of sentiment, which is mildly optimistic (bearish), most of the important market indicators are neutral right now. The last month of summer could be a boring one for the stock market.

5 comments:

Anonymous said...

Jody,

Thanks for pointing out the declining top.
This may be forming a declining channel - perhaps the bottoms are starting to form a trendline parallel to the top.

On SPY chart:
The price is at the 50 DMA (it there enought resistance to counter recent bullish sentiment?)
For the last 3 days, prices are up but volume has been weakening.
Your comments are welcome.

Thanks for posting your 50% SDS position - looks like it has a high probability of success.

Ken

John from Colorado said...

Jody;
Just a follow-up to a comment made in the previous posting; what do you make of the very low volume over the past week (lowest volume of 2008 set the past three days)? The fundamental ecomomic news appears to be somewhat positive on the surface; GDP revised upward, jobless claims down, manufacturing up more than expected, etc. I'm hoping this drives the market up in the short run as sentiment improves. I prefer to lower my dollar cost average as I continue to buy short. Any thoughts?
John from CO, home of the DNC

Jody said...

John,

The market has been moving horizontally on low volume, so I think that's neither bearish nor bullish.

There's very little fundamental news (GDP, jobless claims, etc.) that I pay attention to any more. Since late 2007, earnings forecasts for the S&P 500 have been continually revised downwards, and those revisions tell me (1) that the forecasters are always optimistic, and (2) that where it counts (corporate profits), the numbers have been going south.

Jody said...

p.s.: Despite the convention going on in Denver, "hope" is something you should avoid when it comes to your investments.

"I'm hoping this drives the market up..."

We have to go by what the market is actually doing and then react to it.

John from Colorado said...

Jody;
Well said. It's hard not to get caught up in hope whether it's Obamanation or investing. I'll stick with the data I track and your very useful and analytical blog. I'm only a third into my bear position at this time. I am sticking with dollar cost averaging into my position and "make money in the middle". So far so good! As always, thanks for the excellent blog.
John from "Hope" Colorado