Amanda Blitzdorf's  Instablog

Amanda Blitzdorf
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Amanda is an analyst and portfolio manager. Her experience was developed in global macro economics, quantifying and qualifying trading signals, and execution of propietary trades with discretions. She is also a frequent writer of Zumlon's blogs. Amanda has worked with many topnotch fund managers... More
My company:
Zumlon Technologies LLC
  • Is a harbinger of another bear market in the corner? 0 comments
    Jun 11, 2011 12:38 PM

    Since Early May the stock market has dropped like a rock with April 18 low taken out in a few clips. S&P 500 Index has lost almost 7% in six weeks. Investors across the globe are wondering if more financial mishap is befalling on them in the weeks to come. 
     

    Usually, the stock market has interactive cycles along with economic activities.  As the undergoing economic recovery begins to wane, the stock market drops in value accordingly, further foretelling the incoming downward economic cycle.  Thus, the market topping pattern quite often forms way before the main street people feel the pinch.  If the ongoing stock market retreat evolves into a full-blown bear market, they will never feel relieved for a long time.
     

    At this junction, all eyes are focused on March 16 low in the coming week, which will also bring 200 simple moving average of S&P 500 into play. 
     

    SPY Chart as of Jun 8, 2011 (by courtesy of Zumlon Technologies LLC)

    What events will drive the market to penetrate below or bounce from these levels?  Let's look at the calendar of next week.  Retail sales will be released on June 14, one hour before the market opens.  It is a key indicator of how the economy pans out, given the high flying gas prices.  In the mean time, Producer Price Index will hit the wire.  Consumer Price Index will come out the very next day.  Finally, initial claims and housing data will be released on Thursday.  All these data will cover the most important aspects of the economy, namely the markets of consumer, labor, and housing.  More importantly the inflation data will provide some further hint to the Fed on its interest rate policies. 
     

    Any remotely good news may ignite some sort of relieve rally as bulls are convinced the economy only experienced a soft patch and bears are forced to yield partial of their recent gains.  However, the market dynamics may point to a totally different picture as we turn our calendar back by about 850 days.
     

    SPY Chart Apr 07 - Jan 08 (by courtesy of Zumlon Technologies LLC)


    From this chart we can clearly see the pattern of how the market evolved into an epic bear market followed by a painful recession in the United States.  October 17, 2007 marked the older market high, where investors used as the last window to get out of the market.  From the pattern recognition point of view, a similar pattern emerged, though the history may not exactly repeat itself.  That said, investors may be wise to be on alert all the time these days to discern if the last window opportunities are presented to them in this two year bull market.

    Disclaimer: I don't hold any positions of aforementioned securities.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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