Nov 11, 2010

What To Expect Next?

As seen in recent market moves QE2 turned expectations higher. The question rising now is what is next direction? Generally speaking we are in overbought area and there is no doubt stocks now are expensive. This is visible not only from new market high, above April one, but looking at % stocks above their 50 MA. Indicator is measuring 82% of the stocks above mentioned moving average. In the day of QE2 easing announcement almost 45% of the 500 shares in S&P500 index closed at new 52 week highs. Latest close number fell to 12% and still they are close to 1 year highs.
What to expect next? Considering the fact that FED is going to pump fresh $75 bln. each month till spring corrective intentions will be limited. However market needs fresh breadth. Mild correction is possible to first support level – 50 MA (1157), some 5.3% down. This correction will only be bull trend confirmation.
Looking at S&P, the chart shows some parallels regarding last April top and current picture. Oscillator indicators are overbought and money flow index is in declining trend after reached its peak before market corrected. This is suggesting down pressure.
SPX5002010111Source: StockCharts.com

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