21 April 2009

S&P 500 Short-Term Forecasts

The Pig is in short-term trading mode, keeping an eye on the Russell 2000 on behalf of my 3X-Bear R2K ETF, TZA, as well as looking for enticing opportunities to trade the FAS/FAZ combo. Aside from those, I'm interested in keeping abreast of the S&P 500 and its action over the coming weeks.

Carl Swenlin at Stockcharts.com's ChartWatchers blog posted several nice charts showing a likely short-term pullback in the S&P 500. Click on the link for all of the graphical goodness. If you don't need the visual evidence, here's Swenlin's conclusion:

Bottom Line: Based upon my perception of market behavior versus indicator status, I am expecting some kind of correction, possibly a short consolidation -- a week or so -- or a quick, scary couple of down days. Regardless of how the overbought conditions are cleared, I am assuming that the rally is not over and will persist for at least a few more weeks.

Today qualified as a "quick, scary" down day:

We'll see if the gravitational pull on the market continues tomorrow. A quick look at the $SPXA50 chart below shows that the number of stocks trading above their 50-day moving average dropped from an ionospheric 448 to a mere stratospheric 413:

Zero Hedge offers up some more technical analysis suggesting 816 as a potential downward target for the S&P, which is only a 2% drop from today's close. Again, this is a short-term target (Zero Hedge's linked report calls for ~April 30 as the target date, what with Chrysler's presumed Chapter 7 filing coming around that date). That seems like a conservative target to me, considering today's thorough sell-off.

Trader Mike took note of today's sell-off, pointing out the steep upward trendline has now been broken, meaning the short-term trend for the market is now negative. But it's not yet time for the bears (or a certain Pig) to celebrate and run rampant:

I think we all knew this selloff was coming, the only question was when. This was the biggest drop in several weeks and has broken all the March trendlines on the major indices. The bulls didn’t even put up a fight at those trendlines, which is a big change from the past few weeks. Financials led the way down, thanks to Bank of America (BAC). Despite BAC’s 24% drop today the chart doesn’t look terrible. It’s just back to where it was about a week ago. Let’s see if it can find support around the late March highs.

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