It’s been nothing but up hill for the US stock market the past 13 months. It just felt odd because people from professional managers to the individual retail investor kept money on the sidelines due to the current economic climate of high employment, record foreclosures & fragile credit markets. Those people know they have been left out in the big run up, so when there is a dip, money is put to work, helping the market recover from intraday lows to intraday highs. There is the school of thought out there when the market does correct itself, it will correct big & be fierce. Friday April 16, 2010 could have been a telling story on that. It started Thursday April 15, 2010 after the bell when Google released earnings. Even though they were better than expected, Google stock fell in the after-market hours, thus dragging S&P futures downward through out the night & into the open on Friday. An hour into Friday trading provided the main catalyst, the SEC charged Goldman Sachs with fraud. The market plummeted, got fundamentalists thinking this could be the news to correct the market & technicians looking out where it will close to see if this is a pullback or time to get the bear cap on.
Chat 1 shows he run up we have had, but also shows two trend lines that need to be violated before we can think about a major correction, on a technical point of view.
Chart 2 shows the trend lines up close, making them clearly defined. The news did get SPs through the first trend line, a trend line that has been intact since early February 2010. The SPs bounced right off the second trend line, which has been intact since mid-March 2010. If it broke & closed below the second trend line, next week then could be ugly for the bulls.
Where this brings us in the immediate future is the question market pundits will be questioning all weekend. On a technical view, at this moment, we are still in an uptrend, which would have made Friday a good buying opportunity. We are still not all out of the woods yet. Monday will be an important day. If it closes Monday below the second trend line, then it’s time to turn on your shorts, buy the US Dollar/Japanese Yen, buy puts/sell calls.
All of this comes on the heels of this past week’s NewsWeek cover, saying “America is Back,” making people who study intermerket analysis starting to think we are up at the top.