The Drop Begins

I was listening to a news channel today. The reporter reported that the S&P was up 2 points. How misleading! Today was a very bearish day in the market.

Let me explain.

In the financial markets, there is a setup known as a bull trap. This happens when the market goes to a higher level than a prior high and then drops back below the level of the previous high. Many investors are buying in anticipation of higher prices. What they get are losses. The new buyers panic and place sell orders. That's what happened today. The market gapped up at the open, busted through the old high of 1185, and made a new high of 1189. If the price increase was authentic and genuine, then the market should not have dropped below 1185. However, at 11:00 a.m. (PST), the market dropped back down below 1185 and eventually fell all the way to 1171 before closing at a 50% retracement level @ 1180. There are alot of investors and traders who bought the market this morning above 1185. Those investors and traders are now underwater.

What does the future hold?

1180 is now resistance. There is more supply than demand at this level. The market should drop from this level and find 1157 or so. When the market closes below the 13-day moving average(now at 1170.47), the general public will wake up and recognize that the trend has changed. The market is now heading down for a while.

I don't think the market will crash. I am bullish for the long haul. But if the market is going to drop, there is no point served by remaining in the C Fund and watching the value of your funds decline. My target for the drop is 1065 (resistance during the last week in August). My time target is November 2. Then, it will be a good time to move 100% into the C Fund again.

The market should finish up the year on a high note. The next time the market challenges the 200-day moving average, it should be surpassed.

Good investing!

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