As we approach the midway point of 2009, I thought it would be good to share an analysis of the current market, a state of affairs, if you will. The first half saw incredible moves, volatility and a potential market bottom. The action was more than one would see in a decade and we saw it in six months. However, if you went to sleep on Dec 31, 2008 and woke up now, you see the indices virtually unchanged. The SPX is virtually flat, the Dow is down modestly and the Nasdaq up solid. That is all history now. Let's take a look at the SPX here for both situations, bull and bear. The market should slow down a bit into the July 4th weekend. We want to look at the present and see what may be in store for the summer and the rest of 2009.
The Bullish Case
I only put the bullish case first because I flipped a coin, and the bulls took heads! As you can see on the chart below, the bulls have made a tremendous move but could be getting tired. However, the entire month of June was a rest period, so maybe that summer rally is going to get kick-started. Moving averages have converged with price and are really showing a neutral trend. Support continues to lie just below at 880 on the SPX. One thing we know is if prices are not moving up then they are going down. The one caveat here is a decline in volatility, which we've seen in the VIX. How so? Declining implied volatility tells us to not expect extreme moves into the future. Basically prices are adjusting for the decline in volatility making it safer to come in. I expect this to continue as the volatility trend flattens out. Targets include the 1000 mark on the SPX and perhaps to 1050.
S&P 500 Daily Chart
The Bearish Case
Bears are concerned here, only because the market has not moved for them. Oh sure, days like Monday are great...but a gap down, then followthrough and that's it? The entire loss was engulfed and reversed by Wed/Thurs. Clearly the bulls did not want to give it up so easily. While there are fundamental arguments against the economy, we'll stick to the charts. Prices have flattened here and with quarter end the window dressing period is ending. Volume has not been good on up days, and that lack of participation makes for an uncomfortable situation for bulls. Momentum is driven by price and that is driven by volume. MACD is now at its lowest point since Mar 24. Is there 'something' out there, a catalyst to trigger a selloff? I really don't know, and the charts are not showing it either. The lack of fear is startling given we're only eight months removed from the armageddon scenario. Targets include 850 on a failure of 880 and then the 800 (50% retracement high to low).
S&P 500 Daily Chart
Bottom Line
The ball is in both camps here. The market is the final decider and will tell us which direction the next trend develops. Currently, the charts/technicals have a modest bias to the downside only because they are not looking up, which is a rather weak argument. We're hoping the second half brings us more opportunity to trade both sides of the market profitably.
Bob Lang,
BigTrends.com
1-800-244-8736
Disclosure: None
This article is for educational purposes only and should not be taken as a specific trade recommendation. There is risk in all trading, including options trading.
