Economic Review

4/24/2010

Technicals rule US Equities once again !!

Despite the veritable plethora of negative macro economic, financial and political factors that warrant lower stock prices, there is one major shinning star that is keeping this sector alive and kicking. That factor refers to technical indicators that hedge funds, speculators, bank prop-traders and even mutual funds follow.

Last week the S&P500 managed to close just a few points above the 50 percent retracement level between the historic highs achieved in the index back in 2007 and the lows set in March of 2009. This 50 percent Fibonacci level on a long term basis generally marks a major resistance level, where a breach through it signifies a change in market trend. This level came in at about 1150 on the S&P, and the weekly close last week above this level has bullish technicians chomping at the bit. The confirmation of the breach of this level was this past Monday’s trade down to retest the level as support and it held to a tee, only to see bullish speculators ramp up the index, as was case in point on Tuesday’s session.

What’s the bottom line? Macro economics are simply pointing at unsustainable economic activity given current spending and borrowing activities around the globe. However technicals can push markets around, but sooner or later reality produces a viscous readjustment back to real value.

Sell stocks now??? It’s like standing in front of a slow moving steam roller…a steam roller that is heading for a steep cliff down the road at some point. Hey, stocks looked great at the historic highs in 2007 (but not according to the Market Doctor), however underlying fundamentals pointed to a serious correction. Not much different in this move. Remember…if things are all that great, why does the US have negative real interest rates?

Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR

Daily Analysis | About

Market Doctor Disclaimer

All information contained herein is for informational purposes only and does not constitute an offer to sell nor the solicitation of an offer to buy any security. “The Market Doctor” or anyone affiliated with the production of the investment market information is not responsible for any activities conducted by viewers. This material is informational only and does not recommend investment activities for corresponding viewers.