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10/20/2014

The question of the week is no doubt…is the recent hemorrhaging in the US Equity sector simply an overdue correction or is it the beginning of something bigger on the downside for prices?

As we mentioned in last week’s report, some major longer term technical indicators had been breached and that opened the way for continued losses for the major Equity Indexes.  The losses mounted quickly and also quickly ceased when the downside for prices reached nearly 10% for the S&P.  Given the increased volatility and vulnerability over the past weeks, technical indicators have finally surfaced as a tool to help managed the mayhem.

As far as direction is concerned, we favor a scenario of longer term weakness prevailing in the Equity sector.  The short term should probably see a bit more of a bounce stemming from last Friday’s gains but the area of S&P 1920 should provide resistance for the upside, short-term euphoria.  Factors that come into play include dissention in the Fed regarding interest policy, EBOLA fears, ISIS issues, upcoming November elections and on the broad macro front…a beleaguered middle class that is suffering, underemployment and flat wages.

However…as bearish as this scenario seems….if price action for the S&P can breach 1930 on the upside, we would quickly relinquish the downside price bias for stocks and turn quickly neutral.  One cannot forget the incredible and sustained momentum that has pushed the major indexes to their highs just a few short weeks ago.

 

Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR

 

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