Our April 26th call for a market top was bang on
In our April 26th Flash Report, we said “There are a number of factors that are giving us signals that the market is close to a top here. First we have the Greek credit default issue that we talked about earlier. No matter how this plays out, we feel that the euro is going to decline - this will mean a rise in the US dollar. Generally if the dollar rises, the market declines.”
“Also, if we look at the following chart, we can see a head and should pattern developing. The alarming item to us is that the right shoulder rise is happening on a serious decline in volume (purple line on bottom of chart), meaning that more investors are getting out while the market rises.”
“The other disturbing pattern to us is that the neckline (blue line on chart) is declining, which is an indication that the right shoulder will not rise to the level of the left shoulder. There are certainly no guarantees in the markets, but we see these indicators as valid reasons for us to remain cautious that a market correction is near.”
It turns out that our April 26rd call for a market top were spot on, as that was the very peak of the market rally. Since that date we have seen the S&P 500 drop 187 points or over 15%. Looking at the following chart, we can see that the S&P 500 has broken through October 2009 support levels (bottom blue line on chart). The real question now is how low does the market go from here?
We keep warning that we could be in for another recession here and that markets could decline significantly. We have already seen a 15% decline and there is likely more to come. Understand that the markets do not move straight up or straight down, so we could see a bounce in the markets here, but overall we are quite bearish in the equity markets and would not be surprised to see the March 2009 lows challenged before it is all said and done. Stay tuned!
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