In my last blog on Friday May 25th, I noted that markets were oversold enough to justify the traditional seasonal rally surrounding the U.S. Memorial Day holiday. Well, as you will see on the chart below, it wasn’t much of a rally! A technical analyst colleague and I were discussing the recent tendancy for markets to ignore many of the shorter termed seasonal patterns, as well as the shorter termed momentum studies that traders tend to watch. Take a look at the RSI and stochastics signals given just before the memeorial day holiday (seasonally speaking, markets tend to be strong from 2 days prior, and 5 days after Memorial day)—these oversold signals did lead us into a short rally, but nothing to write home about.
But what about the 200 day moving average?
Much ado is being made about the S&P’s break below the 200 day MA. I have mentioned before on this blog, and will mention it here again: a break below support or a MA is meaningless unless it lasts for at least 3 days. Given that technical support lies somewhere around 1260-1270 for that index – and that hasn’t been penetrated yet – I am inclined to believe that there is a reasonable chance for another bounce this week from current levels. Personally, I will be looking for an opportunity to become more defensive in such a rally.
Keep in mind that I remain a bull for the late summer and into the winter. I have mentioned my reasons behind my longer termed target of 1550 for the S&P500 in past posts, one being the potential for a new monetary easing program . In an election year, we might expect that the Fed will take some action to buffer extreme market downside. Failing to do so might increase odds for the loss of the presidency to the Republican party.