Looks Like a Ceiling to Me
28th February 2010
The last time the 50 day MA held back the stock markets in early February of 2009, just a little over a year ago. That recovery attempt preceded one of the worst 4 week periods in stock market history as stocks took their final plunge of the financial crisis. In a similar fashion, the market has once again bounced back to this level. This confirms the fact that the 50 day MA is now providing resistance for the market to break through, rather than supporting the market as it has done since the market broke through this barrier after bouncing off its lows last March.
What may be different this year is that the market seems to have found a home at its 50 day MA. For the SP 500 this is 1110, for the QQQQ its 45. This is a sign that institutional investors are not ready to commit either way on this market. Those of you who follow Bill O’Neil of IBD fame may have noticed that the weekly chart looks like it is trying to put a handle on the big cup it has formed. While a completion of this pattern could bode well for stocks, its failure could send stocks plunging down further to seek support at the 200 day MA.
There is no need to act quickly at this point. If you already have positions where you have sold March options, you might as well hold on to let some time premium deteriorate. On the other hand, the only positions that might make sense now are those that take a neutral stance on the market for March.
JD
