Weekly Market Commentary from 5/23/08

Wow that was quick. The Dow lost 500 points this week, as oil continued to rise, housing continued its decline, and inflation and recession fears flared. No wonder the markets went down.

From a technical perspective,
several markets also lost their trend support levels.  Adding insult to
injury, not only did the markets fail to stay above their 200-Day
moving averages … most markets are now back under their 50-Day moving averages.

This is a daily chart of the S&P 500 Index with price just beneath the hotly contested 1400 level.  It shows that price broke below the uptrend from March (shown by the thick red diagonal line); but is resting just above the down-trend support line from October (the thick blue diagonal line).

080523 SPX Decision

We are now oversold no multiple time frames. However, we'll see how long it lasts.  Bulls are quick to point out that we went from overbought to oversold too quickly, with low volume, and not much re-testing.  Bears respond: that's the definition of weakness.

Of course, most market watchers were expecting a pull-back. As noted, the markets had run-up quite a bit and were facing their 200-Day moving averages. It's quite normal to stop there once you had such a long multi-month move upward. Also, the lack of negative sentiment deprived the rally of fuel. It will be interesting to see the Commitment of Traders data and new bull bear percentage when it comes out later this week.

Things that caught my eye this week:

This should be an interesting week; respond intelligently.

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