Market Feeling Heavy

Friday, January 29, 2010

The S&P 500 has traded in a rising channel for about 6 months being bought on the low end and sold on the high end. Channels are some of my favorite technical patterns because they're very basic and give traders an idea of how to approach trading from a general strategic perspective. My view is that markets and stocks are either trending or consolidating. In up-trending markets, look to a buyer on pullbacks and in down-trending markets, look to sell rallies. The market has been trending higher for months but the picture may have changed in the short-term.

Last week's aggressive sell-off brought the market to the low end of the range and we are hovering. While there's been lots of reasons to rally, the market just isn't rallying. Apple's blow out earnings left the Street unimpressed and the iPad was met with lukewarm reviews, yet only relative to previous product releases. Bernanke's re-confirmation was sold yesterday afternoon. Basically, I'm just not seeing the market rally like I would expect. It seems that we have fallen to the low end of the range and we are not bouncing, at all.

A break through yesterday's lows at about 1,080 in the S&P will forecast a move to the 1,000 level given the technical rules of ascending channels. As Laz always says, a rising channel while increasing in price has bearish implications upon a break to the downside. The measured move will be the width of the channel to the downside and finally provide us with the 10-15% pull-in many have been awaiting.
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