A Little Calm Me Down, Courtesy a Very Bearish Trend ~ The Risk Averse Alert

Sunday, May 24, 2009

A Little Calm Me Down, Courtesy a Very Bearish Trend

Sometimes you just have to consider the simplest things to get your bearings on forecasting probabilities...


I mean, come on. Just look at the S&P 500 200-day moving average. What does it project?

At best the S&P 500 might be bottoming. Indeed, the index might have bottomed already. Yet even in this case some period of pressure retesting the March '09 low probably is better expected here. Contrast the present moment with late-2002. You see what I mean.

Equally probable — if not more so — is the trend beginning October 2007 will continue. How does one not consider the rate of descent thus far and conclude it'll be a miracle if a bottom here can be pulled off.

Which leads to the least probable likelihood of all...

Just look how far from left field the S&P 500 already has come just to approach the underside of its 200-day moving average! Odds the index continues its ascent, cutting through the 200-day moving average and turning it up, are slim.


Some kind of merciless grind over the next couple months — essentially going nowhere — remains possible.

This concern relayed Thursday is bolstered by the observation that, daily RSI for all major indexes remains on the buy-side (i.e. above 50). Contrarily, back in May '08 relative strength was deteriorating in large-cap indexes, while only the more speculative (like NASDAQ) held to the buy-side.

So, the present, harmonious display of buy-side relative strength could be indicating any pending decline still might find support around respective 50-day moving averages (or nominally lower).

Nevertheless, some simple big picture perspective is useful here. Larger probabilities are clear. The fast-sinking S&P 500 200-day moving average plainly reveals a very bearish trend...

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