From a fundamental prospective, the 2009 equity markets has most investors scratching their heads wondering how this market reached these levels with the economic news so weak.  The unemployment rate hit a 26-year high at 10.2% unemployment and this does not count the 6-7% of population that has quit looking for employment.  The federal deficit is now measured in trillions, taxes are certainly headed higher, yet the stock market is up over 66% from the lows in March.  Historically, the equity market leads the economy by six to nine months so, if true, we should start seeing improvement in the U.S. economy very soon.  With the mixed signals on the fundamental side, what message do the market technicals hear.

Technical analysis is a method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future market trends. Technical analysts believe that they can accurately predict the future price of a security by looking at its historical prices and other variables.

While the S&P 500 has appreciated 66.6% from its March 666 lows to its current 1,110, it is still in technical terms defined as Bear Market Rally.  A weekly closely above 1,126 on the S&P 500 would represent a 50% retracement of the Bear Market Phase and mark an official technical end to this Bear Market.  The S&P high was 1,566 in October 2007 and the low was 666 in March 2009.  1,126 would mark the half way point back to the previous high from the low point.  The 1,126 level on the S&P 500 is a line in the sand for market technicans.  The market will test this line and if it breaks through on a weekly close, expect prices to move higher and this level will become support for the market.  If the market fails at 1,126 expect a correction in stock prices.

While it is exciting to watch the market story play out, do not forget that your investment goals should be long-term.  Build your investment portfolio with the right time horizon and risk levels, then the never ending market volatility will not throw you off course.  

This entry was posted on Wednesday, November 18th, 2009 at 5:47 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.