Monday, July 6, 2009

Which Way Market?

Reprinted in full from Bespoke Investment Group:

Friday's big down day put the S&P 500 back into negative territory for the year. As shown in the first chart below, we've been in negative territory for the year much more than we've been in positive territory. The S&P has been flirting with both its 50-day and 200-day moving averages and its 2009 starting level for much of the past month. All of this sideways buildup means that the eventual break in either direction will most likely be an extreme move.


Unfortunately, market technicians are focusing on the head and shoulders formation that could spell trouble if the 880 support level on the S&P breaks. Art Cashin of UBS mentioned it this morning on CNBC, and below we provide a chart showing the head and shoulders pattern. The textbook suggests that a break below the support level shown in the chart spells doom for the market going forward. Hopefully we don't have to even test the pattern.