Bear Market Selling Continues and Markets Break 200 SMAs
If Europe’s problems weren’t enough to scare investors, the US’s poor job numbers today helped to fuel the bear market selling. We will provide much more information in our Sunday night blog but right now the S&P 500 did hit our primary target of support near the 200 SMA. The S&P 500 completed its H&S pattern that we detailed back in early May with our target of 1283. As we write this, the low for the day is 1282.94 but it will probably dip even lower before the close.
Reprint from the May 6th posting:
Our cautionary stance and forecast for May selling looks like it will probably be correct – at least for the next few weeks. To finish on the lows going into the weekend was another bad sign for bulls. The S&P 500 finished at 1,368 at its 80 SMA and the COMP closed at 2,956 to fill the 4/24 gap and is near its 80 SMA. The DJIA sliced down through its 50 SMA to close at 13,035.
The lack of a solid move up after over 75% of company earnings’ beats was giving a hint of problems ahead. Along with the bad jobs’ number, the political uncertainty of new European leadership was also a major reason for selling on Friday. And, unfortunately, France elected left-wing Francois Hollande over the weekend who is an unknown. In Greece, the ruling coalition saw its support fall sharply. Italy’s top leadership is also in disarray. Discussions of European breakups are swirling again and that kind of uncertainly is never good for markets. This week will start out with selling and the bulls will have to fight back hard to produce a countertrend rally.
From a technical standpoint, the breakdown below both the 20 and 50 SMAs is always bearish. It is especially bearish when the breakdown goes below the powerful Head and Shoulders neckline as shown in a chart below. Friday triggered both a short term and an intermediate term sell signal.
This short bear cycle could last through May and into mid June just like the last 2 years during that 6 week period.
The first chart below is actually from 4/23/12 but the levels and neckline are still the same as they are right now. It is likely that the next wave down after a brief rally will work its way towards 1,300 and maybe even lower in the next 4 weeks or so. The final target as shown is near 1283.
Breakdown Below Head and Shoulders Pattern Neckline is Trouble:
May Selling Triggered – Watch Out Below:
END OF REPRINT from May 6, 2012.
Normally, the first attempt and test of the 200 SMA gets some buying and creates a bounce up. However, the 200 SMA absolutely must hold or even more heavy selling could continue. That is a major institutional support area for their automated computer sell programs. Once it is broken decisively, then the trigger can cascade the markets down very quickly.
Germany is putting a proposal forward for helping support other country debt bailouts but the collateral from those countries must include some gold bullion. So far, the problem countries have opposed giving up their gold bullion. But this is why gold and silver are getting a strong bounce up today.
More to follow this weekend…
MR believes gold prices below $1550/oz, silver prices below $28/oz, and WTI Crude Oil at less than $90/barrel offer long term investors a good buying opportunity. Scaling in slowly on more weakness is reasonable with hold periods of 12 months or longer.
The caution alert for retirement accounts and investors is still present. Selling some equities to protect gains in case of more heavy selling is prudent at this time, especially if you can take advantage of selling at higher prices during a market bounce. Make sure to be ready to sell even more in case the Euro completely unravels and takes the markets down hard.
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