We were in the C Fund from 1306 to 1273 on the S&P 500 Index. I suspect the market has more work to do on the down side. I hold this belief for several reasons:
1. The 13-day moving average on a weekly chart has been breached. The 50-day and 200-day moving averages are converging at the 1170 level, so this would be a natural level of support for the markets. These support levels should act as magnets and draw the market down towards the 1170 level.
2. We are in a down trend. The down trend has been in existence since Friday, February 18, 2011. Until the trend changes, the trend is your friend. And the trend is down.
3. The MACD lines are open and pointing downward. The lines show no sign of reversing. This condition reinforces my belief that the down trend will continue until late May.
4. Normally, it would be a signal to go long if there appears to be positive divergence between the MACD histogram and price action. I see no indication of any positive divergence at this point.
5. Finally, the stochastic has not dropped into oversold conditions on a daily chart.
For these reasons, I believe that stepping out of the market @1273 on Thursday will prove to be a wise move by the time May comes around. The probabilities do not favor new highs right now. Instead, we are more likely to see a very good buying opportunity in late May.
Have a great Sunday!
Wink
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