By some measures,
just suffered their worst week in 2013. Despite that setback, the
S&P 500 is less than 3.2% from its all-time high. Until
prices fall further, the weight of the evidence shows stocks are
still in a long-term uptrend.
S&P 500 (
fell for the second week in a row, losing 2.06% last week. Other
indexes were also down as traders reacted to news that was
generally considered to be negative. Among the most important
news stories was that a number of companies, including
Cisco (Nasdaq: CSCO)
, lowered their outlook for the rest of the
Even good news was bad news to traders last week. Retail
exceeded expectations, and the number of initial
claims fell to a six-year low.
The problem with good news is that the Federal Reserve has
taper their buying and eventually stop purchasing $85 billion
worth of long-term
every month when unemployment declines sufficiently. Traders are
concerned that the market could fall if
stops buying long-term bonds.
Continued good news about the
could be the cause of a
For now, SPY seems to be near a level where it should find
support. The chart below shows a small head-and-shoulders
pattern. The "S" on the left side is the first shoulder in the
pattern. This forms when prices pull back after trending higher.
The "H," or head, is the new high reached after the initial
pullback. The "S" on the right is the second shoulder, which
forms after a
fails to reach a new high. The pattern could be labeled
differently, but the general idea is the same for any type of
Almost all chart patterns use the idea of symmetry to find
price targets. The eventual breakout is expected to be equal to
the size of the pattern. In this case, the distance between the
bottoms of the shoulders and the top of the head is equal to
about $3.50. This value is subtracted from the breakout point and
a target of $164 is drawn on the chart above.
The next chart shows that a similar target can be found with
After a price move, technical
look for a
. Markets never move straight up or down, and a retracement
generally occurs after a significant increase or decrease in
prices. At $163.35, SPY would retrace half of the move that
pushed prices up from late June to early August.
A break below $163 would show that we exceeded a normal
pullback and more
should then be expected.
Good news for the economy will support growth in
, and that should push stock prices up in the longer
I still believe that the S&P 500 will reach 2,000 in the
next 6-12 months. Long-term investors should not be concerned
about the recent weakness in stock prices. Short-term traders
should consider adding inverse
ProShares Short S&P 500 (
to their portfolio if SPY falls below $163.
Gold Market Faces Less Selling Pressure
gained 4.51% last week. This
came as SEC filings showed that large
reduced their positions in GLD during the second quarter.
John Paulson sold about 11.6 million shares, worth at least
$1.3 billion. George Soros also sold his position in GLD,
although it was much smaller than Paulson's at about 500,000
shares. These two investors were joined by a number of other
investors who sold in the second quarter when the total outflow
from GLD was $18.5 billion.
According to some reports, Paulson has not turned
on gold. He sold the
The recent rally in GLD is in part due to the fact that so
much selling has been completed. Selling pressure pushes prices
down, and without that pressure, the price of gold seems to have
GLD should continue to move higher over time. Large
like we saw last week will probably alternate with large losses
in the months ahead as gold tries to form a bottom that can
provide support to long-term gains. Last week's move appears to
be unsustainably rapid.
The chart above shows that the 26-week
rate of change
) of GLD is near its upper Bollinger Band. This is an indication
that a short-term top is likely near.
This article originally appeared on ProfitableTrading.com:
Short the Market If This Happens
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.