The S&P 500 took big technical injury today as money continued to flood out of stocks and into the shelter of bonds.
Provided you keep track of bonds then you understand that huge buying in bonds has been going on for a while now.
What we all didn’t know was why were institutional stock traders still buying bonds in such enormous numbers.
We believe we at this time know the answer by doing technical analysis on diverse markets and searching for connections linking them.
This inter-market investigation of relationships between different charts has given us some fascinating insight into why institutions have been buying bonds for the last 6 months.
It has to do with timber.
No I am not one fry short of a happy meal. Actually perhaps I am but that’s not the focus here!
When the price of lumber drops, bonds typically go up. If you ponder it, it makes wonderful sense.
Lumber prices drop when demand falls. In a recession big ticket items like home construction are hit hard as no one has enough money to purchase a house or even a car. This drop in demand for lumber makes the price of lumber drop as well. Given that home construction and the financing of homes, including equity lines, make up such a giant percentage of our GDP, the plunge in home construction implies awful things for our economy and stock market and great things for bonds.
What really gets me infuriated at myself is that I did not spot the spot on Fibonacci 50% retracement on the S&P 500 on Monday. I should not have gone long anything until I was convinced it bust through this major level.
In this video I look carry out technical analysis on SPY in four time frames and tell you why I believe you should run to cash and keep out of this market or go into a bond ETF stock.
Studying the weekly chart of SPY we have a Bearish Engulfing candlestick. What also is disturbing is that we are dreadfully close to closing the neckline and forming a Bearish Head and Shoulders Top. Moreover the 21 week MA line support has been broke and is now acting as short term resistance. The 8 week MA line has dropped below the 21 week moving average line, although the 13 week moving average line has not. The 13 week MA line is very close to falling below the 21 week MA line and if it does, look out below.
The daily chart took more agonizing technical damage on today’s chart verifying the Bearish Engulfing candlestick that formed yesterday. The 8 day moving average line was broke today. The 13 and 21 day MAs are so overcrowded together that we possibly will see a break of both in the next 1 or 2 days! This would be very bearish. The vital support level that needs to hold on the daily chart is $109.21
The hourly chart on SPY looks especially dreadful. The important support level of 111 was broke. When this support level was broke, traders all ran for the exit. Volume increased on the sell side as a greater and greater number of traders bailed out of the S&P 500. Fear really absorbed all. What also looks exceedingly awful is that the 8 and 34 hour moving averages have broken below the 55 hour MA line.
To connect socially with the stock market go to this social connection stock market blog to watch my stock trades in real time via Twitter and Facebook, to get breaking stock market news, and to watch technical analysis videos like this one stock market analysis
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Parker, Samantha "Technical Analysis Update On SPY." Technical Analysis Update On SPY. 2 Jul. 2010. uberarticles.com. 7 Oct 2014 <http://uberarticles.com/finance/technical-analysis-update-on-spy/>.
APA Style Citation:
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