Stock Market Danger | 200 SMA Near
Momentum Rider forecasted on Sunday night that a test of 1,330 this week was a real possibility due to Spain and European debt fears escalating. Today’s low for the day hit that target near 1,329 before the market bounced late in the day. The news that bounced the market was a Fed release saying that they are ready to make a QE move if necessary. That was hardly news as Bernanke said that in his testimony last week but it was enough to cause some short covering.
The only interpretation from the release that could be viewed as bullish right now is that Bernanke would announce QE in early August instead of waiting until September like most believe he will.
After the bell, Apple reported earnings and missed their numbers which could put the market under even more selling pressure and the important 50 SMA will likely be broken. The next stop is the critical 200 SMA near 1,315. With the strongest stock in the market missing and based on its large percentage position in most institutional portfolios, and its large weighting in the index, it could really hit the market.
MR has been selling many positions across the board in their portfolios over the last 3 trading days in case the 200 SMA is breached. A repeat of the first few weeks in August from 2011 would be disastrous for any portfolio and the risk is simply too high in our opinion.
Our belief is that the next 6 weeks into early September carries a lot more downside risk than missing out on upside profit. Unless Bernanke does surprise the market in early August, we expect more selling pressure and at best very little upside from here. Be nimble in case the market unravels quickly with automated computer selling below 1,300.
At a minimum, consider hedging your portfolio with put options, buy some inverse ETFs, and sell your riskiest and highest beta positions just in case. Don’t sell everything but lighten up if you can to see what happens in the next few weeks. Cash is sometimes a good position and this is one of those times.
MR recommends investors continue to remain cautious and lighter on riskier equities until after the longer term financial situation in Europe has more clarity. The short term has turned negative, and the 200 SMA is getting close so be ready to make some more sells if necessary.
Gold and silver have not shown the strength MR anticipated in June and July. At this point silver needs to hold its final support at $27/oz or it could see a big drop. Gold’s key support area is $1,550/oz before creating increased selling. Precious metal investors need to be on watch to avoid a big fall and to free up cash to buy a big selloff if one comes. Both gold and silver are still great long term investments, but pain may be coming if buying doesn’t come very soon.
The caution alert for retirement accounts and investors is still present and will remain for the foreseeable future.
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