Bottom in Stocks? Hard to Say

By Jeff Friedman

As we know, last week was an historical one for the stock market. We saw a freefall, even as the Federal Reserve and other central banks made unprecedented, coordinated interest rate cuts. The December S&P 500 index was lower last week by over 18 percent as it extends this month’s plunge. Year-to-date, the S&P is down about 38 percent. The focal point is on the global credit clog, but fear and panic are driving the markets. As fears of a big global recession spread, crude oil fell $16 last week, under $80 a barrel. Just a few months ago, it was at $147. How quickly things change.

As far as the S&P 500 futures, this morning, stocks are embracing the result of a weekend meetings among a consortium of global leaders to shore up the financial system. Plans included the guarantee loans between banks through 2009 and allow governments to buy stock in distressed financial companies. The European Central Bank, the Bank of England and the Swiss National Bank announced they would lend unlimited amounts of dollars to banks. The Federal Reserve announced that in order to provide broad access to liquidity and funding to financial institutions, it and the Bank of England, the ECB, the Bank of Japan, and the Swiss National Bank are taking further measures to improve liquidity in short-term U.S. dollar funding market.

From a technical standpoint, momentum indicators, the Stochastics and the Relative Strength Index (RSI), are oversold but remain neutral to bearish, signaling that sideways to lower prices are still possible near-term. If December S&P futures extend this fall’s decline, the 87 percent retracement level of 788 is the next downside target. Closes above the 20-day moving average at 1129 are needed to suggest that a short-term low has been posted. First resistance is the 10-day moving average at 1053. Second resistance is the 20-day moving average at 1129. First support is at 873. Second support is at 866.

For day traders, I see the market force as neutral to bullish. The market appears ready to make a strong rally to the upside. Watch for crude oil to bottom as prices start to rise too. Some of the measures the Treasury, the Fed and other global central banks have announced to help alleviate the financial crisis have not taken hold yet and will take some time. So if the market can hold it together, better days should be coming. However, there could be more frightening events pending that could keep the market in a panic, so be cautious. It’s likely to remain a volatile time.

December S&P 500 futures were last up 50 at 941. Is the bottom in yet? It’s hard to say.

Good luck and good trading!

Please feel free to call me at 866-231-7811 or contact me via email at jfriedman@lind-waldock.com if you have questions on this topic or to discuss specific trading strategies for your unique situation in this or other markets.

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