January 17, 2009 at 1:00 am by Max Chen
Trying to decipher the fickle stock markets and subsequent exchange traded funds (ETFs) does prove to be a headache, but it is not without rewards.
Abrupt Shift. The end of 2008 showed the Standard & Poor’s 500 and its related ETF, the SPDR S&P 500 (SPY), moving above its 50-day average, which would have signaled a favorable change in the market’s short-term trend, writes Michael Kahn for Barron’s. Even in the first week of the year, the 50-day was still looking higher.
But recently, prices have abruptly moved below 50-day averages. Could it have been all the negative news about earnings, retail sales and record job losses? Either way, the rally has taken a breather.
On Monday, investors closed out their existing positions, bought inverse exchange-traded funds, or initiated short sales en masse. Steep trendlines don’t last forever whether they are bullish or bearish, but they do exist in the short term as trader sentiment and momentum steer the stocks. Those short bursts tend to burn out and recently any path, up or down, will be coupled with lots of volatility.
According to Ripe Tide, current market conditions still hold the potential for a short-term bounce. It is noted that statistical evidence in stocks and bonds markets show a correlation to historic performances of the S&P 500 after such conditions were met. It is noted that the current price pattern of the S&P 500 is still bullish.
There are investors looking for that opportune time for a rebound. It will come someday, and we need to be prepared. The easiest way to know where the trends are is to use a trend-following strategy. Look for those areas that are moving above to help make your decisions accordingly.
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