Week in Preview (9-22-08)

After an insanely crazy week this past week investors are anxious to see what the market decides to do this coming week.  Fears which were accented by the fed at the first of the week were actually calmed by the fed toward the end of the week.  However after a few days to sit on it and think about it tomorrow could truly bring anything.  In my last post I shared my prediction of the S&P heading down to 1100.  I still think that could happen.  Unfortunately the Fed is trying hard to manipulate the market which makes things much more difficult to predict.  However there are still some thing apart from the fed which indicate the market to be in an overall bear trend.  While I do think the bottom is near, and could be here after the fed's actions at the end of the week, we must approach this market very cautiously.  We must always remember 2 things:

1) Trade the market based on the technicals

2) Be prepared for anything and trade appropriately. 

Let's look at the S&P and I'll show why I'm still mostly bearish on the market.

In my last post I highlighted this classic falling 3 pattern.  Even though we bounced off of a previous support on thursday I mentioned I felt the next level of support is much stronger.  Of course the fed's announcement this past Friday really turned things around so theoretically we could have just bounced.  However, notice Friday's close was just about the same as Monday's Open.  Leaving the week with huge moves, but a virtually unchanged week.  A look on the weekly chart shows we are still solidly in a down trend.  

To accent my feeling of general bearishness check out the moving averages. 

Friday's move traded up to but not through the 50 day moving average.  This is a common retracement for the S&P.  In fact if you look at the last year the S&P tends to acknowledge the 50 day moving average as a pretty good measurement of bearishness vs. bullishness.  

The next reason is a glance at the ADX indicator on S&P. 

Typically when a new trend is beginning you will see ADX moving up, as we did in the move from the last two weeks.  ADX measures the strength of the trend.  On Friday ADX moves down.  While it is an indication that the bearish trend may be slowing, it is not an indication that a bullish trend has begun. 

All this is not meant to be bad news, simply cautionary.  The market can be brutal to those who don't know what's going on, but if you can see these trends and read the market a bit you will be in a position to take full advantage of these great moves.  Happy trading this week and be sure to check out some free classes at The Financial Puzzle.