Monday, April 28, 2008

Current State of the Equity Markets - 4/28/2008

The market continues its potential consolidation just above the breakout point of the wedge on the daily chart. The problem being, is that during the consolidation, the market has been unable to work off its overbought condition and until it does this we can not expect much more on the rally side.

At this point the best thing the market can do in order to remain in a healthy position is to decline anywhere from 50% to 62% of the entire rally we have seen from the 1260 low on the S&P 500 cash index. This would actually aid the market in its quest for higher prices. The longer we sit in this area and go nowhere, the higher the odds that the big money will come in and be net sellers driving prices much lower than the 1260 low that currently stands as an intermediate term bottom.

I would not expect very much from the market Tuesday in terms of making a choice which way it wants to go as we continue to wait on some very big economic data and also the Federal Reserves almighty take on interest rates.

I continue to wait for a corrective mode of this rally in order to get a long term feel for the next major move in the markets. I still lean in favor of a correction followed by a move all the way back to the mid 1500's on the S&P 500 cash, perhaps even challenging all time highs.

Until then, the market action is very reminiscent of watching paint dry, but don't fall asleep just yet. periods of low volatility are followed by periods of very heavy volatility as sure as sunset follows sunrise.

One final note on the seasonal aspect of the current market.

We are currently in the Month End/New Month period that typically offers some pretty positive returns. We are also leaving April which historically has been a very good month for the market and this year is proving true to form with this month being up 5.57% so far, a very respectable number.

The last trading day of April tends to be quite a volatile day with strength in the morning followed by weakness in the afternoon. The last day also happens to be the Fed's Decision day, so for short term traders it could be a boon for volatility.

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