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


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...

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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