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Why You Can Bet on an S&P Bounce Today

By Jeff Clark
Tuesday, December 18, 2007

It's turnaround Tuesday. At least, that's how I'm playing it.
 
Yesterday's market action was poor. The S&P 500 dropped below the 1,465 support level. That negates the recent bullish series of higher lows and increases the odds of dropping down to test the November lows at about 1,405.
 
But first... we bounce.
 
The market is down three days in a row, and it's getting overdone on the downside. Many technical indicators are now stretched far enough that we could see a sharp oversold bounce.
 
For example, take a look at the following chart of the S&P 500 plotted with the 20-day exponential moving average (EMA)...
 
 
The 20-day EMA is a simple technical indicator that acts like a magnet for the S&P 500 in the short term. The index rarely strays more than 30 points or so from the EMA before snapping back. As you can see from the chart, we're almost exactly 30 points below it right now.
 
So it's about time for a bounce. And if the market opens lower this morning, then it's probably worth it for short-term traders to take a shot at the long side. We could see a very dramatic reversal.
 
Remember though, it's only a bounce. The failure of the S&P 500 to hold above 1,465 is bearish and signals lower stock prices over the next week or two. Even if the S&P bounces back above that level, the bullish pattern is broken and needs time to reset.
 
There is good news, however. So many technical indicators are already stretched so far to the downside that they're unlikely to get much worse. If the S&P 500 retests the November lows – or even makes a modest new low – the technical condition of the market is likely to improve.
 
This will set the stage for a more meaningful intermediate-term rally early next year.
 
Until then, however, only the most nimble of traders should venture into the market.
 
Best regards and good trading,
 
Jeff Clark




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%