Market Conditions: June 16, 2011

Good evening!

A bounce is coming to the markets for several reasons.

First, the S&P 500 Index printed a long-tailed candlestick or doji. A doji means the market displayed indecision. It went up and it went down but ultimately it closed at about the opening price. After an extended downturn, this condition can signal a bounce is coming.

Second, the market at one point dropped from the daily high of 1274 to a daily low of 1258 where it practically touched the 200-day moving average on daily chart. As you recall, some investors and traders will use moving averages as a rough measure of support and resistance levels in the market. When the 200-day moving average was touched, many buyers decided to buy stocks. This buying pressure is represented by the rise from the daily low of 1258 to the close of 1267. The area between 1258 and 1265 now represents a zone of buying pressure.

Third, a day that reflects late-day buying pressure so that the close is higher than the open (1265) is bullish. It would support traders moving prices higher for a bit since the line of resistance is now UP! Even in a larger down trend, bounces happen. They are expected. They are welcomed because they afford higher prices at which to sell.

In conclusion, a bounce is coming. Resistance remains at the falling 13-day simple moving average or 1290. 1290 is now the zone for selling. The drop from resistance should create a lower low than today's low of 1258. This lower low (in the future) should present a short-term buying opportunity.

Bounces are natural in a down trend. They happen. Let's see if the market can bounce up to 1285-1290.

Later,

Wink

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