Big Short Squeeze on Rumors | MR Investor Chart
The week started out badly on Monday as the S&P 500 sold down very close to our Sunday newsletter bounce forecast near 1260. It actually reached a low of 1266 so it didn’t quite get as low as we predicted but the market was technically way oversold and was ready to bounce up. There were far too many down days in May and the short sellers for the markets and the Euro currency had overstayed their time.
The big question was how the S&P 500 was going to act around the 200 and 250 SMAs which were very close to each other near 1283. Tuesday the market tested 1283 and closed at 1285. It was basically a pause day day but it had the shorts nervous. Then once the rumors of secret meetings between the US and Euro leaders hit Europe, along with some ECB rhetoric, the short squeeze kicked into action.
The rumors had nothing concrete or specific but the snap back up from being oversold and the auto-program technical buying and investor buying above the 200 SMA did the rest. It was a perfect environment to get a big technical bounce day. And as the day wore on, the Republican Governor blocked a pro-union recall vote which spurred on hopes of a Romney Republican boost for President. It was probably small but it could have added a bit to the rally.
It was a good tradeable rally for long swing traders as everything bounced across the board. But you need to put the one day move up in perspective. MR recommends using our MR Investor Chart (invaluable planning resource) to better help you navigate these news’ driven markets (see below). Note how the markets were on the brink of a major investor sell signal on Monday well below the 200 and 250 SMAs. The shakeout worked and the oversold bounce led to investor buys and auto-program buys today after getting above the 200 SMA. The subsequent short squeeze pushed the markets up much higher just underneath the 150 SMA level near 1,318 (2nd chart below).
Momentum Rider’s Key Investor Chart (Managing Your Portfolio vs. Moving Averages)
The S&P 500 closed today below its 20 and 150 SMA which are both near 1,318. Being below the 150 SMA on the S&P 500 is still bearish and it is also 46 points below the critical 50 SMA. Even a move back above 1325 is still in a caution area for investors with a recommended reduced equity exposure level (i.e. still below the 50 SMA)
The bulls will try to spin the Fed’s comments positively to push up towards the 50 SMA near 1360 and the bears will try to take the market back down to its 200 SMA at 1283 to erase today’s gains. The 20 SMA (1,318) can be a strong resistance trendline, especially when joined by another big moving average like the 150 SMA. It will be interesting trading in the next few days and into next week.
Investor Chart with Technical Analysis and Key Battle Levels:
Nothing fundamentally changed today except for a technical market bounce based on several rumors. Until details are provided by the Fed about QE3 or specific details are released about a European plan for their debt and banks, MR’s defensive and cautious position won’t change. For now, it was only one big short squeeze day from a very oversold condition that probably won’t have any legs. Only time will tell.
Gold and silver had strong bounces late last week and they may have higher to go in the short term. Oil is still looking for a bottom and investors can scale in on any more weakness a little at a time.
The caution alert for retirement accounts and investors is still present. Selling more equities to protect from 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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