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The US Market is at a critical juncture

17 Nov 2008 04:44Peter Waring
For anyone who is interested in some big-picture technical analysis of the US Markets!!

The S&P500 Stock Market Index is right now testing a critical resistance point, which is the 50% Fib retracement of the 1982-2007 Bull Market (838). The market last tested this low on the 10th of October. There has been a lot of talk recently about whether or not we have seen the bottom of this bear market, but fundamental analysis would suggest that we are far from the bottom and the worst is yet to come. I will go into the reasons for this in my next posting, but for the meantime I thought I'd concentrate on the technicals.

If the market breaks through this key resistance point, then we could see a move lower to 700 or even 600 within the next few months. If we hit 600 then that would bring us down to about 60% from the peak set in October 2007. It sounds like a lot, but in the bear market of the 1970s we saw a similar sell-off and in the Great Depression of the 1930s the market was down about 90% from it's peak at the worst point. Bear in mind that we are headed for a period of deflation which we have not had since the Great Depression, the bear market of the 70's was severe but it was an inflationary recession so the blow was somewhat softened. In my opinion we will see a bottom that is somewhere inbetween 60%-90% down from from the peak set in 2007. That's a huge range for sure but the volatility in the system at present is extreme.

Incidentally, if we market breaks through 838, the next Fib retracement level is 604 - the next key resistance point. If anyone is interested in reading about how Fibonnaci retracements work, then the following article explains it pretty well.

http://www.investopedia.com/ask/answers/05/FibonacciRetracement.asp

Bear in mind folks that we are witnessing the greatest deleveraging that the world has ever seen. In my next article I am going to focus on the fundamentals of the economy.

For now, happy trading, and beware of the bear!

Peter Waring
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