Saturday, August 8, 2009

S&P500 Possible Moves In August

Here is my monthly forecast for month of August, my July forecast was not as precise as I liked to be, I mentioned if S&P stays above 940 we could hit 1000 ,but in mid-month update I adjusted my forecast according to head & shoulders pattern, I was looking for a bounce from 880 (200 SMA) and we got that , I thought S&P500 is going to run out steam at ~930 to complete the right shoulder, but it shoot higher.
The broadening top pattern has completed. If S&P500 moves above 1050 the Broadening top scenario won't come to play.

There are 2 important supports that you should pay attention to, 950 and 880, S&P500 should not violate these levels. If S&P violates 950 we should head lower to 880, if S&P500 drops below 880, bulls are in a big trouble.
On the other hand if S&P500 manages to move above 1020-1050 it could shoot to 1100-1130 (the upper side the channel #1)

As I mentioned in my previous post if bears want to push the market lower they should come with the full force at 1020 level, on Friday S&P500 could not reach the 1020 and bulls started to take profit at 1018 in closing hours. S&P rallied over 52% since March low, despite the less bad news like ISM and GDP ,there is no fundamentals to justify such a rally. This is a humongous bear market rally not new bull market, do not let talking heads on TV fool you. Think about it, they didn't see this crisis is coming how could they see when we are going to get out of it. If you remember in Oct 2007 they were calling for Dow Jones 16000, instead it dropped to 6547.

It is naive to think everything is getting back to normal just in 6 months. Banks are not fine by no measure. Commercial real estate and credit cards are next shoes to drop, 10000 foreclosure per day is huge, and government did not do anything real to stop it. They just talk about it, but so far there is no will to do anything about it. Because people bought houses that they could not afford and if banks want to do anything they have to write down huge loss. Think about it, if banks want to modify loans who is going to lose money? the answer would be Banks. Obviously they are not going to do that in a big scale. The number of modified loans in 2009 is a big joke. When you owe more than your house value you are in the ditch, you can not refinance... all you can do is to continue to pay your mortgage as long as you have job, and hope eventually your house value increase.

Our government do not spend taxpayers money wisely, to me "Cash for clunkers" is just waist the money. This is another bailout for bankrupt automakers. They manufacture temporary market for cars who last for a couple weeks. It won't create a sustainable demand to create new jobs. The irony is that 80% of cars has purchased through this program are foreign cars. Please pay attention that "Cash for clunkers" program will boost the 3rd quarter GDP, but it is not going to have a meaning full effect on 4th quarter GDP or first quarter 2010. They could spend taxpayers money wisely to create new jobs in tech sector or renewable energy... People can continue to use their old cars for many years, but if they loose their jobs they won't be able to pay their cars loans. You don't need to have PhD in macroeconomics to figure it out. We need a sustainable jobs, let's face it many jobs won't come back ever. We need to direct the workforce to the new fields.

No one can say when market bottoms. Being cautious is the name of the game, be open for anything. lets see what is going to play out.

Related Topics:
S&P500 Broadening Top Pattern