Monday, December 1, 2008

The Next Decline Phase is Underway; Dec. 1, 2008

The decline phase I've been waiting for is underway. And as usual, it doesn't happen exactly when I expected it to. This is another reason why I like to ease into positions. I've been shorting this entire rally on the way up and this morning I closed the remainder of my protective call options at a small profit.

The reason I feel this is the next declining phase that should take the S&P to at least 800 is because we finally have the sellers back in the market. NYSE breadth is very weak and out of all 500 S&P stocks only 7 or trading up today.....yes, 7! That's a broad market selloff. Once again, the beginning of a new month brings about heavy selling. This accompanied with Black Friday's retail sales out of the way, and the horrible manufacturing and construction numbers are contributing to the sell off. This decline feels the it's the real deal because unlike previous declines the past two weeks, this one is accompanied with a 5% sell off in gold, and the euro is selling off, and the yen is rallying strong across the board. All these are signs of a broad market selloff that should have enough strength and momentum to reach my target area of 800 in the S&P. And quite possibly much further.

As for the technicals; in the S&P daily chart above you can see a big red bearish candlestick forming after smaller green ones from the week prior. This is a weakening structure as long as we close down big today. Also, look at the stochastics at the bottom (circled), they are about to cross down. A strong close down today should make those cross down and confirm that momentum is now turned down.

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