Tuesday, March 31, 2009

A Bounce In A Bear

Hi there, and welcome back to RI's S&P 500 blog.



The definition of a bear market is one that makes lower highs and lower lows and one that has moved more than 20% lower from its peak. As the chart above clearly demonstraights, we are now down more than 50% from its peak of more than one year ago and we continually make lower highs and lower lows. In a simple sentence - this is a bear market and will be until the market can establish a pattern of higher highs and higher lows and one that stops going down!

Having said that, we here at the RI, we have been looking for an ultimate move lower into the high 50's on the SPY. This target was established when the market confirmed the bear-flag-pole formation - refer to blog from March 10th - 'To give us an idea of a possible downside target one only need to look at the bearish flag-pole formation. (where the market peaked last Aug. near 128 - then fell dramatically down to a low near 82 in Sept. - then rallied back up to 105) . A break of 82 (which happened in Nov.) suggests prices need to fall down to the 59 level.'

What does this mean, traders ought to be short on a break of the recent lows (at or near 73.74) with stops just above the recent peaks (at or near 95.00). Investors have no business even looking at the US stock market for now. Current downside targets suggest the 59 area on SPY should be tested in the coming months.

That's all for this week,
Brian Beamish FCSI

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