As noted on previous post since SPX trading near to targeted SPX 850, I alerted breadth and institutional distribution even though price actions have shown strength. Markets are venerable just same as we have seen wild sentiment swing in a couple of weeks from extreme negative sentiment to quite bullish sentiment.
While there is no mathematical formula to gauge reasons for the sudden sentiment swing, what is reasonable is to be reasonable with expectations. As noted on the American spending habit and the current economic condition, it is unreasonable to expect markets rally as if we are in a new bull market while we are continuing to see job cuts and yet to see commercial loan fall out.
Financial markets lead economy for the most of circumstances; however, our economy is unprecedently and uniquely facing global economy challenge. Americans supported the world economy during the past few decades, and now as a result, millions of Americans are in financial crisis. Therefore, it is prudent to adjust our expectation from the markets regardless how much markets sold off prior to the SPX 666 bottom. Oversold condition should be considered in the context of economic condition and expectation, that is, realistic fundamental assessment and forecasts.
The bearish market action scenario is still possible as markets have not traded above the pivot resistances, which I noted as SPX 850 +/- ( i.e. SPX 864.31 which was the high on 4/13/2009).
Pivotal S/R
SPX 800/770 and DOW 7700/7500
While markets do not show technical damage from the recent uptrend of 30% rally, markets are trading at pivotal cycle turn.
Even though VIX/VXN is broken to downside, price volatility is high which could induce more volatility after remaining relatively low VIX reading.
http://trend-signals.blogspot.com/2009/04/prosperity-based-on-illusive-economic.html
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