Market Timing Update: Will the March Low Hold?

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Market Timing Brief for 8-03-201 with 8-04-2011 Update

1. The SP500 index (SPX; SPY) is testing the March low today (8-4-2011 UPDATE IS BELOW- we’re now testing the April 2010 high). It fell below that level this morning and has recovered back above that. This level clearly has to hold or there could be more damage. Remember that a market can test below a critical level for a day or even two and recover. Those are called false breakdowns.

If you buy or sell, you need to have a stop when trading or investing around critical numbers like this. The number to follow is the March 16th, 2011 low of 1249.05. Right now we’re at 1256.02, above it, which is positive.

This pullback resembles that of October 2008 not in magnitude, but in the number of days the market has been down in a row. In Oct. 2008, there were 8 down days in a row. What was different was that the market had already sold off for many months. That is not the case this time around. BUT, that said, we are at a critical support point (the March low) and we have been down 7 days going on 8 today, so a bounce from here is possible. I do not recommend holding a new position if the close is below that critical number. I you do not want to trade, I would suggest waiting to see if the market strengthens a bit more.

8-4-2011 NOTE: The SP500 Index is testing the low from today right now at 2 pm. The US dollar (UUP) has held up well throughout this sell-off and is rallying strongly in fact. Follow the number above. If we don’t get a close above the 1249.05 low from March 2011, there is little reason to buy unless you are buying based on valuation. There may be individual stocks worth buying based on valuation as well. Remember to SCALE in using steps rather than buying all at once. Same goes for selling unless you are willing to rebuy quickly. Scale out in steps, when you are selling this late particularly. But do what you feel is best of course.

This is what the chart looks like today, charting system courtesy of Worden Brothers at FreeStockCharts.com:

Will the Market Hold the April 2010 High or Not?

The key number to hold now is the high for April 2010 (yes we’re back there), at 1219.80.

2. Gold (GLD;IAU) was still making headway today, although it has pulled back from earlier gains. This could reverse if the stock market finds its footing. I suspect a lot of money has gone into gold, because it was coming out of stocks and did not want to enter the sluggish to down US dollar.

Still, the US dollar is weak and until it turns around, gold won’t be under dollar buying pressure (which brings gold down).

8-4-2011 NOTE: That dollar buying pressure showed up which has cancelled out the effects of real buying in gold of which there is some. The price of gold in dollars is determined by both organic buying/selling and US dollar movement. I have an article on this on my “read my feed page” at the main website: Gold Moves with Buying/Selling AND the Dollar

3. Silver is also still rallying and has the same risks (dollar strength appearing; USDX) as gold. The other risk is the perception that things have calmed down. The silver uptrend is intact at the moment. Today SLV rose above 40.32 and then tested below it successfully. If it closes above 40.32, that would be positive. That would be a breakout.

Realize that silver can open on the NYSE (by that I mean SLV shares) already down 2-5% from the overnight movement overseas. It is much more volatile on the up and the downside, so trade it only if you can stand the risk.

8-4-2011 NOTE: Liquidity concerns are ruling today. Silver does poorly when liquidity becomes an issue. Look back at 2008 chart.

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