Sunday, June 21, 2009

Expectations for The Next Few Weeks

Click on Chart to Enlarge

The chart above is the S&P 500, SPX. The red line shows what would be a typical angle of descent for the market if this is a continuing bear market. Even if this were the first correction of a new bull market, the market may follow that rate of decline, though less likely. The green dashed line projected down from the recent highs, would be more indicative that the bulls have regained longer term control.

From going over historically comparable instances to the current market, I would expect a large retracement of this rally to near where the red line and green horizontal line intersect in late July. That may seem crazy now, but assuming you have been following the market for the last year or more, it should not seem too crazy. While this is obviously looking pretty far ahead, if the market did follow one of these general scenarios, I would be looking to exit the current BGZ trade sometime in July, with a good possibility of re-entering later if conditions suggest a continuing bear market.

Looking at the more near term, the pink horizontal line is the first major support which should be expected to be broken in the next few days (or next week) if the market rally has topped. For the current SDS trade, a sell limit order corresponding to that support level will likely be the initial strategy I will go with for potential exit if there is market weakness early this week. If the market continues sideways/up, I will just be waiting for the next oversold signal.


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