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$SPX – SharpCharts Workbench : StockCharts.com

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Well, we had an interesting day in the market. Fear and near panic prevailed to send equities and (in particular) corporate credit down. We are now oversold (but not significantly) on most of the technical indicators I follow.

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This chart, however, is the McClellan Oscillaor, which shows that the market is the most oversold since the March lows. We all know where the market went after that.

I’d look for a bounce soon, but I think we are really in for a repeat of the same pattern we had in June/July: a consolidation of the recent run before the next leg up. There is a lot of dollar buying and equity selling right now, but that is just short-term trading. The dollar bear market is firmly in tact and will be dictated by the US Treasury and Federal Reserve weak dollar policy. In the near term, this pull back in the equity market is a buying opportunity, however at some point the weak dollar policy will be hugely negative for the stock and bond market. That , however, is not now.

As usual, though, we are protecting against the downside. There is always the possibility that we could pull back to the 200 day moving average. That would not break the market trend, but it would represent a fairly standard bull rally pullback of 15+%. So, we have stop losses set (some of which have begun to hit with the current pullback to the 50 day moving average) and will generate some cash – no big deal as we can redeploy it for the next leg up.

However, as we move into 2010 we will be watching to see if the trends change. There is always the chance that we could see a double dip recession. But, that is for some future discussion. Until then, we will be working out way through the haze.

Mark