5/25/2010

The stock market is now in a downtrend

Today was an important day in my opinion. We finally made a lower low and broke the 15 month uptrend.

052510_spx_daily

You can see in the chart above that since March, 2009, SPX made a clear series of higher lows and higher highs, thus defining an uptrend. Then we had the crash on May 6th, which stopped just shy of the previous trend low on Feb 5th; uptrend still intact. After a rally which made a lower high, however, the market has now resumed selling off, breaking the series of higher lows.

One might compare this decline to that of August 2007, in which we had two sharp down-legs with extreme bearish sentiment. But notice that back then, the market stopped short of making a lower low, and the uptrend continued for another couple months.

Now that the downtrend has been confirmed, my strategy will be to short rallies against 1180.

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