The market is in a confirmed shorter term downtrend. It is moderately oversold with the SPX
at 1286. The SPX may tempt some bids at the current level, but there is much stronger support
in a range of 1260 - 1270 at present. The downtrend is now hinting at a breakaway, but if such
does not develop in the next couple of trading days, then the market may catch a mild, temporary
bid.
I get cautious on near term prospects when the SPX goes to a big premium to its 200 day m/a as
we saw develop over the first several months of the year when the SPX premium went to + 13 -
15%. But now that premium is down to only 3%, so, as inevitably happens, the big intermediate
term overbought has largely been worked off. What happens next in such cases is far less obvious,
although the evidence from the past 25 odd years favors the SPX breaking below its 200 day m/a,
which in itself, need hardly be devastating since the 200 m/a is in a strong uptrend.
My guess is the SPX makes a bottom out three to four weeks before a sustainable rally might start.
But, that's a guess, and I think enough of the price momentum excess of the Sep. 2010 - Apr. 2011
upleg has been worked off that long side players need to put themselves into a more opportunistic
frame of mind.
$SPX
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