Potential for a Retracement Bounce Followed By Lower Lows


Author Larry Berman

Posted: 22 May 2012 re-posted from etfcm

Support for the S&P 500 has held the initial test of the 1290 area we had been targeting in recent weeks. There should be scope for a retracement “bounce” to something less than the recent highs. If we are correct, there is more European debt inspired weakness in the coming months, compounded by a weakening US economy and more anxiety later in the year over the Presidential elections, and ultimately the US debt ceiling in early 2013.

Japan, the third largest economy in the world and the most indebted (where QE has been little more than a periodic adrenaline boost), was downgraded again overnight. Anyone who thinks it is not different this time just does not get it. To be a successful investor in this environment you have to take money off the table when the birds are chirping and have to get it back to work when all are despondent. We would hardly call last week’s selling a bout of despondency, so there are probably lower lows coming after a bounce.

Resistance between 1342 and 1372 is the zone to sell into in our current view, but that could change if the ECB cuts a check or the Fed cranks up the press in June.

 

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