The comments below were provided by Kevin Lane of Fusion IQ.
The S&P 500 Index is stalling again and now turning down from the 950 area. Given the large run-up off the lows it should not be a surprise to anyone to see the market starting to stall, pause or retrace. However, just as the market bottomed and rallied in the face of bad news, we are now getting the exact opposite where the news flow is improving or good and the market is selling off. It is this action of selling off on good or less than bad news that troubles us more than anything.
Early warnings of the loss of momentum can be traced back to early May when the S&P 500 broke below two faster-accelerating trend lines and then subsequently failed to climb back above them. To keep things in context, Monday’s action looks like a small blip so far, but we have to be aware that the S&P 500 has now failed on numerous attempts to get back above 950 and is now testing a less accelerated trend line while its RSI momentum diverges from price. Any movement below that aforementioned trend-line level would suggest the market may want to test the next level of support near 875.
At this point the low-hanging fruit has been picked and easy money has been made and traders/investors need to be more selective while the market corrects the excesses of the run off the lows. It doesn’t mean money can’t be made on the long side or we that we have to have a full retest; it just means being patient, and buying the next corrective wave may make more sense than chasing. To get a renewed bullish outlook, 950 will need to be taken out on a solid upside breadth day (i.e. good ratios for advance/decline and up/down volume).
Source: Kevin Lane, Fusion IQ, June 16, 2009.
