A Market Timing Report based on the 11-23-2012 Close published Sunday November 25th, 2012
UPDATE 11-28-2012: The SP500 Index tested BELOW the white down trend line in the chart below just a few minutes ago and is now back above it. That is bullish for now, but the US dollar index is rallying again, pressuring gold, and I believe we are still due for a lower retest than this initial downdraft.
The VIX has popped up (volatility index) and there are several more days of rally left in it, so the SP500 Index should see additional pressure. Buyers are coming in quickly as they believe that the fiscal cliff is a temporary thing and for this reason expect that the market swoons are temporary.
UPDATE 11-27-2012 10:45 AM: The chart below explains it all. If we survive this retest of the top red line, 1426ish is still in the cards prior to the next pullback. Watch the white down trend line too. A breach back below there will bring us to 1371-1373.
The good news for the Bulls is that the SP500 Index (SPX, SPY) may make it back up to the 50 day moving average now around 1426ish, but the bad news is that if it makes it there very quickly, it is likely to fail there and come back down hard. It’s a bit of the “too much too fast” with no good reason scenario that has been playing out. The market seems a bit deluded about the near term future, but is wildly ready to celebrate a deal in Washington before it has been consummated. For this reason, I’ve begun scaling out on Friday, perhaps a day or two early. You see, these big downdrafts rarely end so neatly. They demand retests of the lows. A fall to at least somewhere down near where we recently hit bottom may do. Even a fall to 1370-1371 could suffice.
Have a look at the chart:
As for the small caps we’ve been following on the way down, the Russell 2000 Index (RUT, IWM) has bounced from the support I identified last week as shown:
There is overhead resistance, but it’s moving on the coat tails of the SP500 Index, which has been stronger. Small caps are harder to escape in a hurry than is the case with the large caps, so they tend to trail the large caps in these bounces that occur in down trends.
Gold has finally made some significant progress. It came suddenly on Friday with the GLD ETF blasted up through two resistance levels shown in the chart:
Where is individual investor sentiment this week? The AAII survey says bulls rose from 28.82% to 35.8% and the Bears fell from 48.82% to 40.80% and the spread shot up to -5.0% from -20.0% last week. The last similar pair of numbers was seen on 5-17-2012 and 5-24-2012. What happened next was that a lower low resulted. This is another reason to suspect that this overexuberant bounce will be given up.
The VIX volatility index has at most a couple of days to fall before it revisits the lows of the prior 3 months. Then the selling should resume. That might fit with an SP500 Index retop at 1425.
Add it all up and the market looks poised to retest lower, even if there are a couple more days of rallying left in the beast. The buys in the table this week are “trading buys,” meaning that if you are buying now, you are likely buying late in this move unless all the stars now miraculously align across the world’s economies and the world’s debts are absolved from on high.
Standard Disclaimer: It’s your money and your decision as to how to invest it.
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