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Watch the S&P selling triggers

20 February 2009

The Technical Trader’s view:


The drama of the market is clear for all to see. A break of the 767.50 in the futures would complete a Double Top. And if that happened the market would be driven down a good deal further. Look closer …


But the long-run daily detail lacks tructure – though a small Double Top can be identified


There is the Double Top and note too, the
push down beneath the near low, which should
act as good bear pressure now.The combination of the Double Top completing at 806.40 and breaking the Prior Low Pivot at
797 is convincing for some. Others will be less sure: shouldn’t they wait for a break f the November low of 737? Or a monthly close
beneath the 2002 low of 767.50? These are all selling triggers…

The Macro Trader’s view:

We still need an answer to the big question: are stocks about to drop through the lows made back in November 2008 as investor confidence and optimism ebbs away?

The long period of range-trading that has persisted since October, can be clearly linked to the emergence of Barak Obama as the candidate most likely to win last November’s Presidential election, which, as we all know, he won. Such was his campaign and desire among American voters for change, after 8 years of President Bush, that Obama’s clear message of renewal both economically and in foreign policy resonated with the electorate. So much so, that commentators compared him to JFK and FDR. Some thought he had the qualities of both, so his promise of a huge fiscal stimulus, to be enacted as soon as possible after inauguration day, gave stocks enormous support as traders/investors thought his accession to the Presidency would mark the beginning of economic recovery. When US economic data continued to deteriorate, with unemployment accelerating fast in the 4th quarter of last year and the housing market still shows no sign of a bottom. The equity market as it continued to bide its time until the moment of “salvation”.
Then over the last week the shine dimmed: US Treasury secretary Geithner announced a Bank rescue plan last week that was thin on detail and failed to include provision for a Bad Bank. The Houses of Congress passed a version of Obama’s stimulus that gave him much of, but not all he wanted.
The Bank rescue plan really rattled equity markets as traders judged it didn’t go far enough, but more importantly, now the stimulus plan was law, hope has given way to reality, which is that the spending will be spread out over 2 – 3 years and those that receive a tax cut are most likely to either pay off existing debts or save it; neither of which will stimulate the economy.

Moreover, policy makers past and present are openly acknowledging that this recession is at least as bad as the 1930’s slump and may be worse, with ex-Fed Chairman Alan Greenspan
saying in the FT this week, that some US Banks may need to be nationalized as the only way of freeing them of the toxic assets that are dragging them down.

His only real concern in all of this was that the senior debt holders of any nationalized bank
have their rights respected, so that that important market remains viable for when the recovery
does come. Other leading economies continue to sink further into recession, with the World’s 2nd largest
economy; Japan, reporting a 3.3% decline in Q4 GDP last week.
As governments continue to pour billions, if not trillions of Dollars into their economies, the
outlook doesn’t seem to improve and equities have begun to trade lower and look set to test
the lower end of the range that has restrained them.
In this environment with most of the policy levers already pulled we judge what is left of
optimism will evaporate further and the S&P will seriously test the downside in the coming

Mark Sturdy, John Lewis
Seven Days Ahead

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