quarta-feira, 30 de julho de 2008

A Spike Here, A Spike There

Fellow Investor,

The wild ride the market has taken us on for the past couple of weeks illustrates beautifully the kind of volatility inherent in a bear market.

Stocks want to go up, and the market wants to rally, but the negatives baked into the cake right now are just too strong for stocks to gather the kind of escape velocity they need in order to make a true break to the upside.

What we are seeing now, and what we are likely to see for a few weeks longer, is a spike here, and a spike there -- followed by a continued push to the downside.

Let's take a look at the chart below of the S&P 500.

As you can see, the market has jumped off of the low it made in mid-July. But take a look at the key levels we need to break above to insure a rally is for real. I've highlighted both of these levels in blue, one at 1300 one at 1350.

I think we could see this market rally in the short term to about 1300, and then the most likely scenario from there is a pullback. But if the market can make the move up above 1350 and hold that level for at least a little while, we could be looking at the start of a new bull market.

My suspicions, along with my reading of the charts, tell me we are in for more market spikes higher on any smidgeon of good news. Then, the most likely scenario is a sustained move to the downside such as we had in mid-May and early January.

Doug Fabian

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