Friday, June 25, 2010

S and P 500 Not Oversold 625 (Chart)


The chart below is of the S&P 500. From this view the market is not oversold.

The blue area on the chart is +2 and -2 standard deviation above and below the line.



As you can see, beginning in February the market formed a beautiful uptrend. The rally was very orderly as the market never became overbought.

Since the peak, you'll notice the market dived sharply below the blue area several times. Each time there was a major rally in the market. Every time this happened, you could watch and listen as one person after another come on CNBC and talked about how this was nothing more then a correction of the uptrend and the market was in good shape.

You will also notice that the market recently rallied back to the +2 line. This pretty much took all the weak shorts out of the market.

I think it is obvious to most people that the market is vulnerable right now. The area around 1040 is really the make it or break it area near term. A sharp close below this area would likely lead to some significant downside.

So far there is very good support around 1040. However, if the market returns to that area again it is less likely to hold.

I would be very careful reading too much into the market going into the July 4 weekend.


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Original content Bob DeMarco, All American Investor