Market Numbers Say A Positive Market Correction Is In Order

May 21st, 2012
in Gary's blogging

We could, and probably will, see a couple of days of improved market outlook this week. In fact, the entire week looks good for a improvement over the markets recent ugly downturn. Regardless what Mr. market does in the next 2 weeks, the 'Risk' factor is still quite high for traders, potential profits will be low and any trading is considered risky. The markets just had a terrible week labeled it the worst for the year and yesterday marked the same level we saw on January, 17th. SPY has fallen 9.33% since early April making it a very painful pullback for many. The SP500 has fallen 9%, the DOW has fallen 7.7% and the Russell has fallen 12.4%. All of these numbers spell a positive market correction is in order and today may be the first of at least several days to move the charts up and away from the looming 200 day MA and support arguments. HOWEVER

Follow up:

However, I only see a maximum 2% rise with the SP500 correcting to 1336, SPY correcting to 134.50 and the $RUT correcting to 781. This is PROVIDING we don't get any Black Swan or negative news worthy events during the next 2 weeks. The new market trend is most likely going to be a sideways consolidation with Friday's low possibly marking the bottom of a new channel. Also possible is that the actual bottom still may be in the making using supports of many indexes, which in most cases is the 200 day MA. Traders beware, tread at your own discretion and with caution. Any new trend has not been formed plus knowing that further declining in the immediate future is achievable. Volume is low, market swing volatility is low and the bottom may or may not have happened on last Friday.

Watch the bellwether index $RUT as it will forecast any further decent by once again falling below its 200 day MA and corresponding support.

Also, we need to watch the 50 day MA is descending to the 100 day MA. For many fundamentally important indexes a 'Black Cross' will spell more decent without question. That 'Back Cross' event, if it happens, is approximately 30 to 45 days away therefore making it difficult, in my mind, to realize any steep accent for the market recovering. The fundamentals also have almost all indexes below their respected 100 day MA's but are more likely to first test their 200 day MA's which also mark their supports before the 100 day MA is tested. We are smack dab in the middle of a decision zone which in my opinion the bears have a firm hold.

This 'Black Crossing' may not happen if the FED implements a yet unnamed quantitative easing program resulting in a market rise. This would coincide with the traditional 'Summer Rally' too. The $RUT is the only major index that went below its 200 day MA (and support) at 752 and today crossed back up. If the 'Summer Rally' happens, the next downturn could again begin in July / August ending in the September / November time frame. That is one scenario, the others have us looking at a continued fall to test the 200 day MA's by this Friday if the financial reports are below what is expected AND then rise. We are going to see the 200 day test before the end of September, the big question are we going to see it happen once or twice?

Not much has happened to quell the concerns of the Greece, Italian or Spanish financial issues which have been effectively swept under the carpet for the week. The underwhelming G8 Summit has done nothing to help alleviate worries, but did not accentuate them either which is good.

The problems, issues and other difficulties surrounding the Middle East, US, China and the Eurozone haven't gone away or even improved in spite what bullish financial analyst’s have to say. Some analysis are looking for a US assisted Iran bombing raid in Q4 only adding to long list of worries.

The Stock Market: Update On Increasing Hazards And Possible Consequences by Ted Kavadas

My overall analysis indicates a continuing elevated and growing level of danger which contains many worldwide and U.S.-specific "stresses" of a very complex nature.

. . . . indicate that there are many reasons for tremendous concern, as seen in almost innumerable fundamental economic, financial-market, and proprietary measures . . . I continue to believe that these European problems are gravely serious and disconcertingly intractable, and have broader implications . . . my analysis' indicate that the danger inherent in the financial system has reached a level at which a stock market crash . . . has reached a level at which a near-term crash is of tremendous concern.”


Greek Syriza leader Alexis Tsipras, who has threatened to tear up the bailout agreement if his party wins elections next month. Tsipras has added that a Greek exit would destroy the euro area. However, Greece is a "sovereign state and makes its own decisions".

It is comments like this from an obvious lack of experience politicians that market stabilized markets impossible.

The market's future is best described in the poetry style of Donald Rumsfeld:

As we know,
There are known knowns.
There are things we know we know.
We also know
There are known unknowns.
That is to say
We know there are some things
We do not know.
But there are also unknown unknowns,
The ones we don't know
We don't know.

Hang in their sunshine, better times are coming.

To contact me with suggestions or deserved praise:

Written by Gary

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