Most of the worlds major indices suffered a shock yesterday as economists predicted the easing of Federal Reserve bond buying to be realized from September onward. However, Bernanke did have a caveat stating – central bank’s policy of buying $85 billion in bonds per month could start to wind down this year if the economy is strong enough and could finish in mid-2014.
So what does this mean for us the investor?
Take a look at the below chart of the SPY – an ETF that tracks the S&P500. I use the SPY because the Volume Data is more accurately depicted than charts of the S&P 500 index.
- The U.S. Market were down an average of 2.5% yesterday
- Yesterday we had a huge volume spike indicating that there was a huge amount of net selling by the market participants. A volume surge of this nature indicates a trend change, in this instance from sideways consolidation to down.
- The index broke down through the 50 day moving average which many professional investors, wisely or unwisely, see as a key support area.
- The CBOE VIX Volatility Index surged 23% – indicating a lot of people are covering their long positions to lock in gains
- In my previous article using Finonacci I indicated we are in the final leg of the bull market and it was important to keep a close eye on the market for signs of a pullback. This could be that signal.
- Possible down side targets should the trend remain in this direction could be 1590 (the 2007 stock market high) or even down to the 200 day moving average at 1500.
The truth is that it is too early to tell at the moment. The Stock Market Crash Detector System I have developed does not indicate a Shock Alert or a Bear Market signal yet. However, if we get another 2% drop today in any of the U.S. Markets we will receive a shock event warning.
Other news from around the globe.
- European Markets took a pummelling yesterday averaging 3% + losses. However, they are showing signs of stabilization today.
- Gold is in a serious BEAR market which was indicated by the Stock Market Crash Detector back on March 1st 2013. Following the Crash Detector would have helped you to avoid a 20% decrease in your gold investment over that same period.
I expect for the moment that this is a short term consolidation or correction which may move the markets sideways for a while until we get further clarity on the Federal Reservse’s future policy.
It is a shame the market participants feel that the markets cannot stand on their own to feet yet, the drug of government market intervention will be a tough addiction to kick.