Stock Markets Uncertain | Big Decision on Healthcare
The stock markets pulled back hard on Thursday after a slew of bad numbers in US retail, manufacturing, unemployment claims, and housing. The poor China manufacturing numbers also contributed to the sell off, especially in commodities. All of this info triggered the strong pullback from a very overbought technical state which we forecasted in Wednesday night’s newsletter. Then the markets were hit with a downgrade of the big US banks. Fortunately, some buying came in at the 150 SMA support on Friday with a bounce to finish at 1,335 on the S&P 500.
This week could see a huge US Supreme Court decision on healthcare. It has many investors on edge and the implications are far reaching. Then there are numerous discussions about the “fiscal cliff” that could come in early 2013 from the expiration of the Bush tax cuts and reduced dividend treatment. It makes investors very uncertain of what to do at this point.
On the other hand, some investors keep hoping that the right decisions will get made. They have been giving the Fed, Congress, ECB, and Euro-politicians ample opportunities to make sound plans that make a long term difference and they are continuously disappointed. Every decision is a stop-gap measure on small problems that only postpone the bigger issues that will need to be dealt with eventually.
Technically, the markets are in a choppy price range that we have discussed several times recently. The S&P 500 is above the 200 SMA and below its 50 SMA. The trading range is roughly between 1,370 to 1,295 (200 SMA) and it needs to hold its critical 200 SMA on more selling. Otherwise, the bear market cliff is back in play and the unraveling of the markets is a real possibility again. Some are even making comparisons with 2008.
More Stock Market Selling Likely This Week – 200 SMA Support Hold Important
The short term to intermediate term buy signal could continue to have some staying power but this week needs to see some buying to give the bulls more hope.
Short Term Buy Signal From Very Oversold Stock Markets Losing Momentum
As long as the market stays above the 20 and 150 SMA, the uptrend rally could continue to work higher (> 1,324). However, the futures are down as this is written and we can’t rule out another test of the 200 SMA near 1,300 or even lower over the next few weeks and into July if the bears get momentum.
Traders should remain nimble and can play select stocks on both sides of the market.
Power Stock Picks:
The choppiness and uncertainty will once again cause us to hold off on some power picks.
MR recommends investors continue to remain cautious and lighter on riskier equities until early July or only after the longer term financial situation in Europe has more clarity. Until some of the longer term structural debt issues have been addressed with a detailed plan, the market still has a much bigger downside risk.
Gold and silver sold off some after the Fed disappointed on QE3 plans. Oil is still trying to 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 and will remain for the foreseeable future.
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