It’s time for a big summer rally… or a crash. There really is no in-between.
Stocks have declined for six-straight weeks. And as of Friday, the S&P was negative on the year. In fact, the market seems to be playing out the negative script I wrote about a couple weeks ago.
Here’s an updated look at the chart I showed you back then…
The S&P 500 broke down from the declining channel (the blue lines on the chart) and sliced below the first major support line at 1,296. It’s now approaching the next downside target near 1,250.
But the market is now oversold. It’s starting to look attractive for a strong bounce. In fact, the following chart just triggered a “buy” signal for the broad stock market…
This is a daily chart of the S&P 500. The blue lines show the Bollinger Bands. (Bollinger Bands are a measure of volatility. They measure the most probable trading range for a stock or an index.) Whenever a chart trades outside its Bollinger Bands, it indicates an extreme move – a move that is vulnerable to a sudden and sharp reversal.[ad#Google Adsense 336×280-IA]Last week, the S&P 500 closed below its lower Bollinger Band. Yesterday, it turned around and closed back above it. That triggers a broad stock market buy signal, similar to what occurred in mid-March. So it’s officially “rally time.” But we need to get going right now. Otherwise, it could lead to a disaster.
When the stock market can’t bounce back immediately from oversold conditions, it usually leads to sudden and severe declines. So we are on the cusp of a significant move – either a big rally back up to 1,320 or so… or a crash.
Think of it as a rubber band stretched to its limit. It should snap back, and snap back hard. But if the market doesn’t do what it SHOULD do, the rubber band will break. And we’ll have one heck of a move to the downside.
So the risk to long and short trades over the next couple days is high. Now is not a time to make big bets either way. But if you’ve been sitting in cash for most of the year, just waiting for a chance to buy into the market… now is certainly a far better time to do so than six weeks ago.
You can take a little nibble on some beaten-up value stocks right here. But save the big bites for later.
Best regards and good trading,
— Jeff Clark[ad#jack p.s.]
Source: The Growth Stock Wire