S&P 500 and DOW: April 26th – April 30th, 2010
Last week the markets again gave no indication of a deeper correction and traded to new highs. Each flurry of selling has been met by buyers. The bears have barely seen more than two days of selling for several weeks now as the markets continue to move higher. Considering that this rally has gone uncorrected for several weeks, it may be losing momentum. We should expect a pull back at some point, and traders should remain cautious.
The S&P 500, as represented by the S&P 500 SPDRS (NYSE:SPY), traded marginally higher than the highs set earlier this month. SPY appears to be consolidating and volatility and volume are starting to increase without a significant price advance.
The SPY 20-day moving average is the level to watch and a market close breaking down through it would be cause for concern.
The Diamonds Trust, Series 1 (NYSE:DIA) ETF, which tracks the Dow Jones Industrial Average, shows a similar pattern to SPY.
Although the DIA is at new highs, its MACD indicator [BOX under chart] remains at its lowest level in several weeks. This indicates that a trend may be losing momentum and while not a reversal signal, it does suggest that the recent upward movement is nearing an end.
** It would appear that the Goldman Sachs Group (NYSE:GS) fraud charge may have only caused a single distribution day. The markets responded quickly and traded to new highs this week.
The markets need to correct, and this becomes even more important when the markets begin to trade at extremes. While it is always possible that the markets can continue to rally unchecked, I believe the current market is vulnerable to sudden and fierce shakeouts. I always recommend the use of “stop loss” orders to minimize potential losses and preserve capital, and can only reassert the importance of “stop loss” protection in these volatile market conditions.
Chart Source: StockCharts.com
