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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market S&P 500 May Be Headed to 1,256

Stock-Markets / Stock Markets 2010 Nov 05, 2010 - 12:49 PM GMT

By: Chris_Ciovacco

Stock-Markets

Friday’s better than expected employment report aligns well with the market’s post-QE2 interpretation the economy is in a little better shape than most believe. Now that mid-terms, QE2, and the employment report are in the rearview mirror, it is a good time to catch our breath and discern what may be in store over the next week or two.


Market participants and their trading algorithms tend to have long memories. We are not big fans of making decisions based exclusively on forecasts, but it always pays to understand where markets may run into some short-to-intermediate-term turbulence. If we can hold onto Thursday’s gains, then stocks and risk assets may have some more room to run. The blue, orange, green, and black lines below represent past areas of importance to both buyers and sellers. A convergence of these lines seems to come into play near 1,256 on the S&P 500 (SPY).

The chart above is one of many tools we use to better understand the market’s risk-reward profile. We will be watching sentiment, the CCM Bull Market Sustainability Index (BMSI), and the CCM 80-20 Correction Index, along with other tools, to monitor the health of the market’s current bullish stance. It may turn out that (a) we never get to 1,256 on this leg up, or (b) 1,256 does not look as important as we approach it based on readings in other areas. Currently, we do know it makes sense to pay attention near 1,256.

The AAII Investor Sentiment Survey showed a drop in the percentage of bulls and a rise in the percentage of bears this week. The percentage of bears increased from 21.6% of those surveyed to 29.8%, which is an increase of 38% week-to-week. Sentiment is a contrary indicator; the more bullish the average investor becomes, the higher the odds a correction is around the corner. Sentiment seemed to confirm yesterday’s break to the upside, but only if we can hold yesterday’s gain by the close on Friday.

Traders, money managers, and active investors should make a point to get away from the market for a few hours this weekend. QE2 and election burnout is probably common among those of us who live very close to the markets. Recharging the batteries is productive in the long-run – go get some sleep and fresh air.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2009 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

Chris Ciovacco Archive

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