As we forecast the market suffered a second consecutive week of falling prices. In fact, the price falls were greater than we had anticipated might be the case with the result that the markets have now entered a critical phase.
What has happened is that the S&P 500 ( I know that we keep wittering on about the S&P but it is the main ‘engine’ for share price rises and falls for both sides of the Atlantic) fell back to the 1111 level which is the lower edge of our established critical support/resistance area for the S&P at 1111/1122.
Why is this critical? Well the 1111/1122 area represents firstly the important level of potential support or resistance which is the 50% retracement of the steep Oct’07 to Mar’09 price collapse and, secondly, the 66.67% level up form the Mar ’09 low of the S&P at 667.
And with the index having previously broken above this area (after, it has to be said, a 3 month struggle) these levels should, after the last two down weeks, now provide support and allow the index to make a new low from which to then recover its upward progress.
The critical aspect becomes a live issue if support is not forthcoming and the S&P 500 index closes below 1111 for more than a week. The index is then likely to crash through 1000 and fall to the 940 area. In turn this will take the FTSE 100 down to the 5000 level and, in the worst case scenario, to the 4700 level area.
However, for the moment the dominant trend of all of these major indices is the Uptrend and there is a bias for higher prices whilst this remains in force. Therefore, after another week or two of uncertainty and sideways moving markets, the indices are likely to start moving upwards again.
But ‘critical’ is an aposite word just now as one interpretation of the last two weeks is that we could be witnessing the start of a change in trend. Our Momentum Indicator (thus far, a good indicator of market tops) is not indicating that there is much active buying of stocks so the support that the indices desperately need in order to reverse the down moves is going to be problematic.
Conclusion ; go carefully during the next wek or two. ‘Tip-toe’ through the market and keep your stops close and up to date.
Individual market commentary and illustrative charts are available at http://www.sharehunter.com/news/market-review/
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