Market Personality Is Changing – Neutral, Slightly Bearish Bias For S&P 500

by Olivier on May 4, 2010

Ugly candles are all over the place. Going through my public list I see the market’s personalty with today’s price action has probably changed. My last S&P 500 chart annotation states I have a neutral bias. I now think a neutral, slightly bearish bias is more appropriate. It remains to be seen if the pullbacks are going to get bought or if this will end up being the start of a correction. The problem with corrections is, they all start as small corrections and it’s only in hindsight you know if it was a buying opportunity or the start of a bigger correction. So far it looks like controlled selling but we could build something like a rounding top here. The next 2 weeks will be telling.

S&P 500 Index Neutral Slightly Bearish Bias Technical Analysis Price Chart

Up-to-date S&P 500 chart on my public list.

So why am I not outright bearish? I’ll try to explain that by means of a simple comparison of two stocks. ARUN – Aruba Networks and APKT – Acme Packet. Both are on my public list and both are part of the Semiconductors Overview Chart. The problem with being outright bearish and shorting single stocks is obvious. The risk of picking a top is extremely high as quite a few stocks like APKT have put in huge gaps to the upside. Remember, the path of least resistance with uptrending stock is ‘up’. It may sound obvious but it isn’t. Just think of how many tried to pick tops and got burned. The same applies to picking bottoms. So outright shorting a stock like ARUN seems the obvious thing to do. But the risk of getting caught on the wrong side of the trade if it gaps up is not worth the risk. The only way to mitigate this kind of risk would be to short indices or ETFs.

On to the charts:

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Have a great evening!

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