Finance Banter

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The Stock Markets:

On the above S&P 500 daily chart we indicate that the bottom on Friday found support on the orange trend line just as the last hour of trading began and took the market positive to close the day. It looks like the shorts didn’t want to hold their positions over the weekend. But, be prepared that after a possible one and a half or two day rally, if we get one, may find sellers waiting to exit and short sellers ready to put on their positions again. The McClellan Oscillator held steady as the market bounced from an oversold condition. We continue to predict an increase in volatility as we observed in the final hour of trading Friday. We, also, continue to expect downward pressure to last into the end of February and we continue to remain cautious and recommend to sell into any rally’s and take profits and hold cash. Volume did increase during the sell offs on Thursday and most of Friday’s which we interpret as bearish institutional selling.

On the above daily chart of the Dow Jones Industrial Average, we show that the index, which jumped out of the descending flag pattern early last week, found heavy resistance at the longer term trend line as shown in blue. As we may get an interim oversold rally, the extent of the two day decline is extremely damaging to the psychology of the average investor. We believe that large moves in the market keep the smaller investor away and selling may accelerate into the end of the month. This coming week we expect volatility to increase which is bearish. We remind you to be aware that the current market action could be a set up for a more dramatic decline now that we have had a small bounce from an oversold rally. It remains clear that the average has broken through the bearish rising wedge pattern from the March 2009 lows. We continue to anticipate that, in our opinion, the next large wave lower has begun and we target the March lows and we expect volatility to increase going into the rest of the year. Again, review the wave up to the 50% retracement level as classically illustrated on the next page. We believe our technical signals are correct for a resumption of the bear market.

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The opinions and commentaries expressed in the Shaffer Market Report are those of Daniel S. Shaffer. The Shaffer Market Report is for informational purposes and educational purposes only and does not give investment recommendations. At no time may a reader rely on the opinions and commentaries as investment recommendations. Past performance is no guarantee of future results. Please consult with your broker or your advisor to explain all risks to you before making any trading or investing decisions.

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