Saturday, March 07, 2009

S and P Monthly Chart indicates a sharp rally is coming soon

By Bob DeMarco

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Each bar on the chart above represents one month. Since the high in September, 2008 the S and P 500 has closed lower five times and higher once (December).

You can see the slope of the market is very severe. This cannot be sustained much longer. When a market index trades down at a sharp angle like the one above, the market always rallies sharply when it reverses directions. This rally could start at any time.

The bad news is that the market could go as low as 565 on the S and P 500 before the rally starts. This is the extreme case, and would only happen in a severe occurrence of a market capitulation. Given the current political and economic climate you have to believe that anything is possible. Unlikely yes, possible, yes.

For those holding cash, any hard down opening is likely to present an opportunity to buy high quality stocks at low low prices. We could see mutual funds, institutional investors, and retail investors all selling to raise cash or exit the market at any time. This is a likely scenario.

I will be monitoring this possible market capitulation around midnight and 7 AM each day. You are welcome to come here and check for a possible market capitulation alert. You are also welcome to subscribe via email, feed reader, or Twitter to get the updates.

I explained how to play a market capitulation in a previous article--Market Capitulation Means Big Opportunity to Make Money. This article contains additional information about market capitulations and how to place your orders into the market.

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Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Associate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, Blog Critics, and a growing list of newspaper websites. Bob is actively seeking syndication and writing assignments.

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