Today's Comments (Short Term Outlook)                             Printer friendly

Let the bear play out Ben Bernanke and more bond insurer downgrades caused some selling on Wall Street yesterday.  Ben didn't use the word recession but sure came close, and not surprisingly, the market sold-off. We know the story -  The sub-prime mortgage, credit crisis, blah, blah, blah; it's certainly not new news as it has been in the air for many, many months.  But the market continues to seem surprised by the bad news, ala downgrades, and other financial related issues.  Just when you thought the worst was behind us, something else lifts its head up.  Get used to it. I don't look at the headlines so much for market direction, but more for confirmation that the technical picture (charts) are still leading the way, and the news will following. We are in a downtrend so we have to stay cautious.  That means if we hear good news, you sell.  That's right.  We are still in a downtrend so we want to be sellers of strength until the charts tell us otherwise.  So far, the charts have been right. Today's chart has the S&P 500 right between the support and resistance of what could be the star of a new - or continuation of the old - trend.  If resistance breaks before support, it will be bullish for stocks.  We are currently bearish and under the assumption that the support will break first because the market is in a downtrend.  But we are willing to change teams if the chart tells us to, by moving above 1396 before going below last week's low.                                      Chart provided courtesy of www.decisionpoint.com  Gaps are so much more obvious on the Nasdaq chart since the Nasdaq is a completely electronic exchange and everything opens and closes at the same time.  Looking at the chart of the Nasdaq you can see gaps all of the place.  The gap created earlier this month filled this week keeping this nice clean chart gap free - except for one.  There is a gap all the way up near 2600 that will eventually get filled.  The question is, how long will we have to wait for it to fill?  As it stands, it would take an 11% rally from here to get there.                                      Chart provided courtesy of www.decisionpoint.com  I am expecting an intermediate-term rally in the 10% to 15% range some time in the near future, but until that S&P breaks above resistance I will stay defensive, although I am looking forward to taking advantage of a decent bear market rally.  We talked about how strong they can be last Monday. So, let the bear play out.  We'll get some opportunities to make some intermediate-term buys but we haven't had one in a while.  Eventually the charts will improve, and ironically the news will probably follow, then we can change our thinking from sell strength to buy weakness. That's all for today.  Have a great holiday weekend.  I will see you back here on Tuesday. Have questions?  Visit our message board for answers.  Would you like to be on our email alert list?  We will send you an email when there is a change to our asset allocation or market outlook.  Your email address will never be given out.  Read our privacy policy.  By signing up you agree to the TSP Talk Terms of Service.  More details below **. Are you bullish or bearish?  Join the Weekly Sentiment Survey. Like what you're reading?  Tell a Friend about us.