June 27 2011 - Mixed Signals - Down Trend Continues
Did today seem like a decent rally?
Looking at the S&P 500 for today, I think this bounce
still remains suspect. The market pushed up but on still
thin volume, but from around 2:30 PM until the close
there was a lot more selling than buying and the S&P
closed on selling.
In the late afternoon when the
selling commenced, I purchased some SPY puts. Look at
the chart below. This is why analysts are having so much
trouble deciding what direction the market is going to
take. It's due to the mixed signals. Some point to the
market moving higher and others lower. Here is my best
guess based on the table below. I will look at each
section of the image below and give my opinion. 1) The
Trend is lower until the market can break through the
May 30 high and begin to recover. If this can happen, I
do not believe it will be any time soon.
2) Today's volume was very poor which
definitely makes the rally suspect. 3) The Ultimate
Oscillator has been climbing each of the last few
sessions and continued to not only stay positive but
moved up again today. However the Ultimate Oscillator
has been wrong many times before and while it points to
a market that could move higher, I really have doubts.
4) The Slow Stochastic has given two bear flags over the
last few sessions. Look how even with the last few days,
while the ultimate oscillator continues positive, the
slow stochastic remains solid bearish. 5) MACD for the
past few sessions, just like the ultimate oscillator is
rising, indicating the market will rise higher.
However markets can really fool
investors. Below is the stock chart from January 2008 to
April 19 2008. Basically the S&P didn't go anywhere, but
the constant sideways movement had to break one way or
the other. We all know what happened when the break
came, the market collapsed. The below chart shows how
long a market can last going sideways. But in most
instances a sideways market will break to the downside.
It is only natural for this to occur since, if a market
cannot recover to new highs, and continually keeps
testing support, it will eventually break support and
It is obvious after looking at the charts above, why
analysts are perplexed by the market. There are mixed
signals every day. Despite the mixed signals, often the
path of least resistance is the one followed when a
market is having trouble. In this case I believe the
trend remains down. If the downtrend continues, there is
always the chance it will fall further and faster than
most expect. For this reason I again bought puts today.
I will continue to buy and sell puts until the market
can break back above the May high and begin to again
challenge the April and Feb highs. There are a lot of
headwinds for this market and investor fear is
definitely one of them. I believe it is foolish not to
have some insurance as QE2 comes to an end and the Greek
crisis keeps investors on edge.