Wednesday, June 30, 2010

Market breaks key technical level

S&P 500 index broke through 1040 at the end of trading to close at 1030. We are now at October 09 lows.

The chart shows the last 12 months of the SPX. Notice the head and shoulders formation that formed the left shoulder in January, the head in April, and the right shoulder in June. The 1040 level is the neckline. By breaking down on the right shoulder, on a technical basis, the next stop is somewhere near the 900 level. Please note that the H&S technical formation is correct about 70% of the time. This very well can be a bear trap and a fake out can occur with the market rallying from these levels. However, given the fact that (a) the European banking system is in serious trouble, (b) China's monster real estate bubble is in the process of bursting, and (c) the federal reserve stopped printing money at the end of March 2010, all signs point to a deteriorating market, and a deteriorating economy.

Longer term, I expect the federal reserve to panic and release trillions more in freshly printed dollars (digits, actually). Its not a issue of IF, but WHEN.

1 comment:

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