FREDAlert!
Volume 4, Issue 2
June 1, 2012
We have been, and are using ONE CLOSE below 129.40 as our “stop” to suggest the likelihood of a summer rally to new SPY highs for the year is likely off the table. So far, SPY has traded through that number but has not yet closed below it. Should we close below 129.40 we would take defensive action, and a summer rally to new highs be likely off the table. At the end of this piece, we give some numbers in the event of a negative close. New subscribers and trials should be aware of the following: our forecast has been that stocks should embark on a summer rally from a low of 134 to 132 to the 143 area, followed by a meaningful correction. We suggested adding cash that was raised at the 140 area back to stocks in both the 136 – 137 and 132 – 130 area in anticipation of this rally.
The open this morning is much more negative than we have been expecting, and the economic news more surprising. While often as the final part of a consolidation before a rally the market breaks support and rallies back above it, we have probed support so many times during this correction that a closing break of support has a higher chance of being valid.
On last Thursday’s call we discussed the possibility of a slowing economy because of action in bonds and oil, and bad accumulation models on XLB and XLI, and the jobs number is suggesting that these fears may be correct. We give a quick review of other markets. GLD is up and has held our “stop” level of 147. A move above 156 would suggest this market should rally towards our target of 184. TLT is over extended but the trend is up and unless this market closes below 118 the chance of higher highs in the second part of 2012 remains high. We have concerns that the chance of meaningful FED action to help the economy in an election year is low.
Support levels on SPY are as follows: 127.50 to 126, then a chance of filling the gap at 120 from last November is possible. Should these numbers be struck, we will generate additional projections.
