Market Watch: Three Bearish Signs

1. After a bounce off of the 50 day moving average we dropped right through it (click on chart to enlarge). We may bounce temporarily off the 200 day moving average, but now all signs point down.
2. RSI has been in a downtrend since May and the market will have to break this downtrend before any sustainable move up will stick.
3. We’ve had multiple down volume days indicating the sellers are in control. You can see during the rally off the lows there were many accumulation days that sustained the large move. Now the dynamics of the market has changed in favor of the bears.

Comments

[Carl Spackler:]

Right on! We looked poised to fall back to the S&P 790 to 820 area. If this market wants to set itself up for a long term trend, it must retest the lows.

Jul 09 10:34 AM

[Bruce Pile:]

If you were just monitoring things with nothing but the charts, knowing nothing about an economic recovery but just doing chart reading as if you were monitoring the weather, you would see a major down move, then a change in direction indicating a significant multi-month move back up. But in mid June, that pattern seemed to run into an abnormality. I wrote an Instablog post about this on June 12 ("Market at Red Light at a Major Intersection"). The typical technical progression was stopped dead in its tracks. Now you have the technicals pointing to some significant weakness.

If you wanted to switch hats from technical analyst to economist, you could make the case that, as Cramer said on his show yesterday, we had an economic downturn, the usual government response, some market friendly policy expressed by Obama, the usual positive market reaction, but now some bungling of the recovery coming from Washington. I would also add that the normal cycling is up against a nontypical recession, given the debt dimension.

Jul 09 11:57 AM

[Mad Hedge F...:]

Sell! Sell! CNBC held a dynamite interview with David Rosenberg, former Merrill Lynch chief economist and current strategist at Gluskin Sheff, who offered the kind of big picture, 30,000 foot view that I love. We are well into an epic post bubble credit collapse. Deleveraging in the private sector is dramatically overwhelming any fiscal stimulus Obama can throw at it. The $50 trillion US household balance sheet is shrinking at an unprecedented rate. The unemployment rate will easily sail through 10.8% to a new high and spill over to a higher foreclosure rate. We’ve had two decades of baby boomers living beyond their means, and it is now time to revert to the mean. The stock market has already priced in an earnings recovery which we won’t see until 2012 at the earliest. Bull markets move in perfect 18 year cycles, and we are only half way through a generational washout in equity ownership that started in 2000. “Buy and Hold” is dead. An S&P 500 trading around a 13 multiple means will be stuck in a 650-950 range for years, and that’s being generous. Rent, don’t own stocks. The one place to be is commodities, because they will be underpinned by the undeniable demand coming from Asia, and have benefited greatly from consolidation. The big “Tell” here is that in last year’s huge sell off , they all bottomed at the previous cycle’s peak prices. It’s nice to hear someone reading from the same sheet of music as I. Too bad Merrill Lynch didn’t listen to David. Wow, do you think I should be selling rallies here at 886?

Jul 09 03:57 PM

[bartpr:]

imo a reliance on market direction using only a 50ma is misplaced. i like to look at the 10 and 20 wk ma close of the nasd and spy. the 10 will go below the 20 with the 20 in an uptrend. the actual price will penetrate both before a new advance. go back as many years as you want and see the same result. this will of course fail at market tops and bottoms. that why no one can know where the top or bottom is. righ now we are in a uptrend off a low. when this play out if there is a reutrn of price above the 20 then the 10 the uptrend is continuing. have to wait to find out.


above the 10 t

Jul 09 06:46 PM