Monday, August 29, 2011

The Near Term Direction Of The Stock Market


There seems to be consensus that the stock market, as represented by the S&P500, "bottomed" during its August 9th low at 1101.54.  Here is the daily 1-year chart of the S&P500 for reference:


(click on chart to enlarge image)(chart courtesy of StockCharts.com)




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Was that August 9 low a "true bottom" - i.e. one that will not be breached, at least in the short-term?  I believe that the answer will be "no."

The decline from the May 2 top of 1370.58 has proven to be very "tricky" and difficult to predict.  I wrote of a variety of problematical fundamental and technical issues during the decline.  While the August 9 low did have the look of a "selling climax," based upon a variety of measures, a variety of technical and fundamental problems continue to exist, including market expectations concerning QE3 and the uncertainty regarding its implementation and timing.

One issue that I am very closely monitoring is that of the price of Gold and the significance of its current correction off of its highs, which I discussed in an August 25 post titled "Gold and Deflationary Pressures."  As I stated in that post:
I am very closely monitoring Gold as I believe a steep, abnormal correction could serve to (further) indicate deflationary pressures – which of course would have outsized impacts on financial markets, the economy, and economic policy (particularly QE3 or some other large intervention.)
There are a variety of other major trends happening that lack recognition.  I will be writing of these in future posts...
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The Special Note summarizes my overall thoughts about our economic situation


SPX at 1196.88 as this post is written
Gold (December futures) at $1803.10/oz  as this post is written

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