Sep 8, 2010

Market Overview

After reaching two month bottom at the end of August S&P500 has rebounded sharply gaining 5.45% for only 3 days. That was retracement of the corrective move through entire August. Slowing macro indicators and persistent unemployment numbers cooled positive investor sentiment from first half of the year. Now after all positive effects from stimulus package has disappeared the economic reality is calculated in stock prices. Considering mentioned above from end of May the stock market entered consolidation period. S&P500 is moving like snake in the tunnel, trying to find direction. Investors are nervous about growing signs of second recession wave. It is not likely to happen rather slowing leading macro indicators like growth, industrial production and private consumption. This determine my view of continued consolidation with higher volatility over next 3-6 months. But if economic indicators worsen further even deeper correction is possible.

Closer look at the index technical indicators shows mixed signs. Slow stochastic has reached overbought area. Crossing moving averages at MACD shows buying signal. One should consider that MACD is slow indicator. Relative strength index is in the middle (53.56) and still has room to grow. S&P500 is likely to test back 500 MA (moving average) at 1082 and then turn positive again targeting north – the area between 200 MA and resistance line. After that another correction is likely.

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