The chart of the S&P 500, frankly, looks like death. At the depths of the last correction, which bottomed at the beginning of June, saw the S&P 500 dip ever so slightly below the index’s 200-day moving average–a very significant technical support level. On November 8th, around 1,377, the S&P 500 broke down through its 200-day moving average. Since that time, we have lost about 30 points (the S&P 500 is below 1,350 today). Wow!
When markets are suffering through periods of uncertainty, which is definitely the case today with the fiscal cliff, slowing corporate profits, slowing GDP, etc., etc., I have found that technical analysis – the analysis of price and volume data and various mathematical calculations based on price and volume – provides the best predictive value for markets. The technicals are screaming lower market levels!
There is little support on the chart above 1,200 for the S&P 500. If we break 1,200 we could easily go to 1,100. Given the uncertainty, and the apparent unwillingness of Obama to compromise on anything – he expects the Republicans to give in on raising taxes for only the wealthy, but doesn’t want to cut any spending or entitlements, which is completely unrealistic and has no chance of success – it is unlikely that stocks will have any reason to rally anytime soon (despite what many market pundits are stating). I remain largely in cash, and will not begin to buy until we see at least 1,250. Depending on how the market trades, and the progress (or lack of progress) on the fiscal cliff negotiations, I may hold out for lower levels (the 1,100 to 1,200 range). I do not see any reason to be in a hurry to risk money right now.