Thursday, May 20, 2010

Mid-sized correction now

Today the S&P 500 index closed at 1072, which is almost 12% below its current bull market high of 1217. I call this a medium correction at least.

Interpreting the market's behavior is a little more complicated than usual. On the one hand, today's closing value - also the lowest price of the day - is still a little higher than the bottom of that crazy crash-and-recover maneuver on May 6.

On the other hand, this is the lowest closing value since early February, which is a bearish signal.

Stock market sentiment has plummeted to levels not seen since late 2008, suggesting that the market is near a short- to medium-term bottom. However, seasonal factors remain neutral at best, and the low yield of the S&P 500 forecasts a significant drop in the long run. Fundamentally I remain more convinced than ever that the global economy is doomed to suffer a large downturn, but I can't predict how much longer our government will be both willing and able to prop it up at the expense of future generations.

The bottom line is that I can't make a confident short- or medium-term prediction at this time. It can be frustrating sitting on the sidelines while the market makes big moves, but there will always be opportunities to make money in both directions, and at least I'm not losing money right now.

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