Here's your weekly investing outlook from CommodityBullMarket.com - and even though commodities are likely to run into some serious headwinds in the short term, we're still firing away with some contrarian investing and trading ideas!
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Now for the week's lead story...
Why We're Short the S&P - Again - Thanks to This Mini-Rally!
Two weeks ago, we picked up a story courtesy of Bespoke Investments that showed just 4% of S&P 500 stocks were above their 50-day moving average - a level not even seen during the March 2009 lows!
So we thought a stock market bounce might be on tap - and sure enough, this week we got it.
Now after 4 straight up days, where do we sit? We're now out of extreme territory - now with 29% of S&P 500 stocks above their 50-day MA. To illustrate the relationship between this ratio, and the actual price of the S&P 500, I plotted both below for the year to date:
Of course this is a crude technical indicator, and one based on trailing prices at that. But it has been effective at identifying extremes - especially oversold ones. Not as much during overbought situations (like February to April of this year).
So where to from here? I still see this ship heading down (here's the big picture of "why").
But we could rally further from here. We closed Friday at 1077 on the S&P. A rally up to but not surpassing the June highs around the 1130 mark would keep our bear market signature of lower highs and lower lows intact.
But I don't think a run up to 1130 is likely. We've retraced roughly 50% of the last decline at this point. So we could go farther - but that is not required at this point. We're already halfway there - this mini-rally is livin' on a prayer!
Bottom line: Any further price appreciation will certainly leave a bear like me licking his lips for a chance to reinitiate a nice, juicy short position! So, we initiated a short position on Friday.
And if you're new to our "shorting the S&P 500" mini-series, you can get caught up on our trade history - and thought process behind the trades - in the Shorting the S&P 500 section on our blog.
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