Tuesday, October 6, 2009

S&P Testing Downtrend Line (to the upside)

Friday morning we said, in "Dow Jones on a Knife Edge":
My best guesstimate is that the downtrend over the last few weeks is a shakeout fakeout. The declines in short interest last month* means there is less buying power from short-covering, which would mean faster and deeper down-moves. These scary down-moves should set up a final run up, with fear of loss reverting to the fear of not participating that we saw in August and mid September....
That followed our September 16 post "Sign of a top? MarketBeat Asks: "Is the “Bear Market Rally” Theory Dead?":
Nah, not yet. Maybe S&P 1125 (currently 1065), sometime in October. (There! I said it)...
Where I violated the first rule of prognostication CYA, "If you give a price don't give a date".
We don't see a reason to change the target or the time-frame. [stop it! -ed]
Just the same, here's something to be aware of, from Bespoke Investment Group:

Yesterday, it was the 50-DMA which provided support on the downside. Today, the S&P is testing the top of the short-term downtrend that started with its intraday peak on 9/23 just ahead of the Fed's interest rate announcement. Just as yesterday's successful test of the 50-DMA was a catalyst for the market to rally, a successful break of the current downtrend should add more fuel to the fire. On the other hand, a failure to break through the top of the downtrend will bring some sellers out of the woodwork.

S&P Downtrend1006

If that doesn't help, here's some insight from Investment Postcards from Cape Town (click to enlarge):


Source: Dilbert, October 3, 2009.