Thursday, August 09, 2007

SnP500 Analysis for Aug 9/07

"``This is an old-fashioned credit crunch,'' Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''"

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Lots of carnage in the market today as the "SubPrime Lending Crisis" continues to wreak havoc on the markets worldwide.

The chart of SPY shows some additional information not found in the chart of the SPX index, and that is the fact that the market gapped down today. There were three pieces of news which changed the perception of the markets. That gap down today was even bigger than the gap up to spark yesterday's rally. And more ominous was the fact that the S&P500 could NOT fill the gap down today, although there were initial signs that it might do so. The open gap now reinforces the resistance in the 1490 zone for the cash index.

The 50d EMA (intermediate trend) is pointing down, but the 200d SMA (long term trend) is pointing up. SPX is sandwiched in between these two trendlines, and it will be interesting to see who will blink first, the bulls or the bears.

Bearish notes:
- AAPL, GOOG, and now CSCO all tried to save the market and failed. People who bought into the post-Fed rally and the CSCO outlook are now trapped and waiting to get out.

- The Russell2000 Index rally stopped right at the stiff brick wall called the 200d MA. Anyone who has held the IWM since April 2007 is still trapped.

- The downtrend is not over yet, the bears are still in control. In fact, we never even made it to overbought conditions during this 3 day rally.

- Market is becoming increasingly sensitive to negative news.

- S&P500 eMini Futures are currently pointing towards another gap down for Friday.

- 30yr Treasury Bond Futures are starting to trend up again.

Bullish Notes:
- Today's selling was a bit overdone, which again, sets up another possible dead cat bounce.
- Market is still responsive to positive news, such as the Fed interest rate announcement and Cisco's positive outlook.
- There is still some buying support at the 200d MA.
- The BPSPX is also pointing to oversold conditions.

In the bullish scenario, the bulls will successfully defend the 200d MA (1453 for the cash index, 145.4 for SPY), but more importantly, sustain that move to close near the HoD (High of the Day). An even more bullish scenario would be a close above 1500 in the cash index.

In the bearish scenario, the bears will take the markets below the 200d MA and sustain that move for a close near the LoD's.

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