Market Breaks Down
After a 7 day consolidation the market declined sharply to end the week after Tuesday’s FOMC meeting. Spurred by disappointing economic and earnings news the ESU0 suffered a large loss Wednesday and drifted lower into Friday’s close. With a low on the week of 1070.50 the key swing low of July 20 may come into play. This level was 1050.75. One of the weakest sectors during the most recent decline has been technology and the NASDAQ fell 5% last week. High profile tech stocks including Apple (AAPL), Cisco (CSCO), and Intel (INTC) all sold off during the decline. The more balanced S & P 500 (SPX) and Dow Jones Industrial Average (DJIA) realized more moderate declines of 3.8% and 3.3%.
The market has remained bullish since turning up in March 2009. However, with our long term timing model going back into sell mode in June, we remain cautious. Often the model will not necessarily result in a bear market while in sell mode, but has many times kept us playing defense during volatile market periods. Even with low rates of return on money markets and cash instruments, it is best to avoid market exposure during such volatile and negative periods in the market. The market appears vulnerable to more decline and we believe a defensive posture is logical.
The economic recovery, of which we have been highly skeptical, continues to deflate. We believe that this recovery will be very slow and may take a decade or more of stop and start slow growth before the economy returns to normal. There was such an extended period of credit expansion in the U.S. and globally that its unwinding is likely to be very extended also. As large corporations, small businesses and individuals all try to reduce debt and decrease spending at the same time it has a decelerating impact on spending and economic growth.
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