It has been several weeks since I have written about the stock market, and I have to admit I was wrong at least in the short term about the market stalling at S&P of 850. However, the market is extremely overbought at these levels, and the economic news is not getting any better.
Initial jobless claims while decreasing their rate of going down, we still have the largest number of people, 6,337,250 people, receiving unemployment benefits ever. House sales have increased over the last couple of months, but prices are still falling at around 2% per month per the Case-Shiller Home Price Index for the 20 largest cities is down over 18% in the last year.
Retail sales come in down .4% for April and Mortgage applications are down from their mid-April peak as refinancing applications slow down. The PPI came out today and prices went up .3% in the last month. This could be the beginnings of inflation that I expect to see. Commodities ETF’s and companies have had a nice run in the last month.
Price has met resistance around the 200 day MA recently.
My point in all this is that a lot of people are out there selling this rally, but with earnings almost complete, the large run up we have had from the bottom, and the large overbought condition of the stock market, we are going to have to take a pause right here. Actually I believe we will see prices decrease by about 10%-15% back down to the 50 day moving average line which is currently at 828, but rising. It is at that time that I believe we will need to look at what happens.
I don’t want to get ahead of myself, but as I look at the chart I am starting to see an inverse head and shoulders pattern begin to form. This is not a certainty, and we need to wait for the pattern to fill out, but for that pattern to fill, we will have to see prices come down. Again, I missed some of the upside, because I had the upswing stalling out at about 850 the first time. As we have seen some resistance recently I took the opportunity on Friday to buy some SDS as a hedge to my long holdings.
Please read the disclaimer as I am not a registered financial advisor. Please due your own due diligence prior to purchasing any security.
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