Market Conditions - Thursday, June 9, 2011

The market bounced today. After six consecutive down days, a bounce is normal and should be anticipated. The S&P 500 Index remains below a falling 13-day moving average on a daily chart. If the market should bounce tomorrow, I would look for 1300, 1305 or 1309 as resistance levels. 1309 is particularly significant because that represents the falling 13-day moving average. In a down trend, a falling 13-day moving average can act as a resistance to cap any bounce.

The trend remains down. The MACD lines remain open and are pointed downwards on the daily chart, a sign of the down trend. Interestingly enough, the stochastics remain embedded below 20 (oversold level). The black line is at 6.78. The red line is at 3.78. There is nothing to get excited about. If anything, the embedded stochastics are signaling to professional traders that they should position themselves short as soon as possible to profit from the next leg down.

Another way to size up the market conditions is to look at the volume. In a Bull Market, volume is greater on up days than down days. In a Bear Market, volume is greater on down days than up days. Volume shows the bias of institutions. It takes Big Money to make a difference in the volume readings. Today was an up day and yet the volume was lower than the previous day. This suggests the buying was tepid.

Conclusion:

Today marked the end of the first leg down since June 1, 2011. In all probability, there are at least two more waves down to go. Should the market hit 1309 (the falling 13-day moving average), that would be a selling opportunity. Moving averages provide excellent shorting opportunities in a down trend. In the meanwhile, I'm just watching the market to see how the bounce plays itself out.

The Trend is indeed Your Friend.

Wink

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