This was a very interesting week. While the long term trend remains firmly up, this week's price and volume action indicated a mighty battle between the bulls and the bears. Take a look at the weekly SPY chart. The market opened higher on Monday than where it closed the previous Friday. Early in the week it rallied above the high made in August at 170.97. But later in the week it sold off to close not only lower than the August high, but also lower than where it opened on Monday. Now take a look at the volume this week compared to the two previous weeks. It was much larger. This combination of technical factors tells me that if early next week prices decline below 170 that there is a high probability of a further decline to at least the 163 level; perhaps even lower to the 40 week moving average at 159 or the next lower support level of 155.75 - 157.50.
CONCLUSION
While the long term trend remains up and the last two weeks have rallied strongly, this strikes me as particularly risky time to consider getting back into the market if you have been 100% in cash. I say that not only due to the factors I've already discussed; but when you add the fact that prices are stretched historically high to the up side, the probability of a negative expectancy is higher than a positive expectancy over the intermediate term. Have a great weekend.
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