Sorry, Bulls, It’s Still a Bear Market

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Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

When we came back Tuesday morning after a long weekend the screens were bleeding red and commentary was as negative as we’ve heard for some time. Two trading sessions later, the S&P 500 is 2% higher than where it closed on Friday, Sept. 2.

In the meantime, the daily chart of the S&P 500 has formed a nice bear flag formation (white lines), which traditionally results in a break in the direction of the trend (in this case lower). The index closed almost exactly at the key 1,200 area, which acted as an area of resistance several times in August.

The candle formation with Tuesday’s long tail and yesterday’s solid rally sets up for more potential upside. Should the index hold above 1,200, it is likely to make a good run at the 1,240-1,260 area, which we have highlighted many times in recent weeks. That area serves as much better resistance as it also coincides with a downtrending 50-day moving average. 

SPX Chart

The cyclical sectors have similar looking charts to that of the S&P 500. For example, note the chart of the financial sector as measured by the Financial Select Sector SPDR (NYSE:XLF) and its downtrending 50-day simple moving average (blue line). In my opinion, that area would serve as better resistance.

XLF Chart

Oil rallied almost 5% and right into the important $90 area, which has served as support and resistance several times since June. The takeaway here is that lower oil prices are a signal that the economy is weakening. As such, today’s rally in oil is a signal of hope for economic growth.

Oil Chart

In the bigger picture, however, yesterday’s rally and potential continuation thereof for another few hundred basis points is just an oversold bounce in downtrending equity charts. See the low yields of 10-year U.S. Treasury notes, for example, as displayed by the 10-Year Treasury Yield Index (CBOE:TNX). This is still very much a risk aversion environment. 

TNX Chart

Today we have both Ben Bernanke and Jean-Claude Trichet speaking, and later Obama is unveiling a jobs plan worth $300 billion. Keep holding on; the wild ride isn’t over yet. The broader trend is lower, but bear markets are made up of vicious countertrend rallies.


Article printed from InvestorPlace Media, https://investorplace.com/2011/09/daily-stock-market-news-sorry-bulls-it-is-still-a-bear-market/.

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