Is The Selloff Over?

Positive earnings, positive Fed comments, & positive credit card data got the markets going and they never stopped today.  Once again volume wasn’t outstanding but at this point it’s not a factor in moving one direction or another.  It’s still about the quality of the rally.  Lately on down days we’ve had really negative internals and on up days we’ve had less than ideal internals.  So, we need to continue to monitor that instead of looking at just things like overall volume.

Today was one of those days that makes you scratch your head as an investor.  “Weren’t we supposed to be rolling over?  Weren’t we supposed to go to 800.  It was so easy.  What now?  This messes up my whole plan.”  A day like today is what makes investing so challenging.  Just when your zigging, the market’s zagging.  This is where moving averages can come in handy.  They aren’t the great answer in investing but they do help you filter out the noise.  Today’s rally doesn’t change anything.  It was a nice day coming from an oversold condition.  I’ve been commenting on my radio show that we were oversold on a very short-term basis but I wasn’t expecting a rally to last.  That’s still where I am at this time.  But, getting back to the moving averages.  If you look below of the S&P 500 since last spring, the blue line is the 21-day moving average (not that I use that all the time).  The reason I have that line on there is to show you how much noise there is on a daily basis but when you average it out over a few weeks, you can get a much better handle on direction.  You can see below the moving average peaked in mid June and has been heading down.  That hasn’t changed because of today.  So, make sure you are looking at those moving averages to help you navigate.  It’s a simple yet effective tool to not allow you to get distracted.

SP 500 7 15 09

You’ll also notice from the chart above that we’re at the top of a range that was established in October to the recent highs.  A lot of traders will notice this and that could be a potential place to sell into.  So, as always, we need to be prepared for any direction.  Coming down a few days and then exploding on really heavy good quality volume could be a game changer but I think there are lower prices ahead over the next few weeks.  So, only the very nimble should be trading right now.

But, as you know, I’m very positive on the market going into the fall as the economy continues to recover.  As I usually tell you, it’s all about time frames.  But, that’s where moving averages can help.  Another tool in your belt.

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2 Responses to “Is The Selloff Over?”

  1. 1 Allison July 15, 2009 at 7:15 pm

    Karl, just my opinion, but I think everyone else knows the economy will improve 3 months from now too and they all know about the leading economic indicators. That is why they will not let this market correct very much. Just about everyone I know is looking to buy the pullback, including myself, and in 3 days, we got back 4 weeks of mild loses. A lot of us are very frustrated that this powerful market will not let us in.

    • 2 keggerss July 16, 2009 at 7:03 am

      Allison. Very good question and comment. I agree that good markets don’t let people in. That’s why we recommended buying the last few months but also taking profits recently. You have to play both sides. However, I do disagree with you that everyone knows about leading indicators. There are tons of people that don’t believe the economy is getting better (hence big selloff a couple of weeks ago on bad jobs number). Also, look at the volume. If everyone knew the economy was getting better, they’d be buying and volume would be much higher.

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