Friday, May 2, 2008

S&P 500 - Long Term Investors Take Notice

The high achieved by the S&P 500 today sent it into the 50% retrace level and placed it in the potential Danger Zone.

The reason I make mention of this is the clear fact that in many many instances the 50% retrace level is a point of very strong resistance and in this current market environment could be construed as the termination point of a bear market rally.

This is not to say that the party is over! What it dictates is that all investors need to watch this price level with some intensity because odds favor prices to head south from here. If the market can close above the 50% level and move on to the 62% retrace level it would have some very bullish implications for the long term health of the stock market.

As I have also been saying, the next corrective force in the market needs to be monitored closely for a clue to the next major long term move in stock prices. First and foremost, the S&P 500 must be able to hold its most recent major lows in the 1260 area. This is a minimum requirement. The ideal situation will be for the market to hold the 50% retrace level of this entire rally from 1260 to current prices. I will be supplying targets very soon.

Because of the 50% level being achieved on the potential counter-trend rally, I am advising a reduction of equity exposure from the current 60-75% stock allocation down to a 40 to 50% allocation to stocks, just to be on the safe side. For those of you who have considerable capital gains in your stocks you can go to the option market and hedge your positions with put options and put a synthetic sell into place.

I will have more information on the Weekend analysis, but I thought I would get the preliminary outlook out in plain view.

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