A New Short-Term Target for Stocks

A New Short-Term Target for Stocks
By Jeff Clark
June 30, 2009

It's hard to stay bearish.

Everything I look at tells me it's right to stay on the short side of the market. But it's been that way for six weeks, and so far it hasn't worked.

It hasn't worked to be bullish, though, either.

Anyone who turned bullish back in early May is suffering the same frustration. The S&P 500 closed at 919 last Friday. That's where it was six weeks ago. So stocks haven't lost or gained any ground.

It's the investor equivalent of purgatory.

At the risk of pressing my bet too far, I'll share with you this updated chart of the S&P 500...

A "head and shoulders" topping pattern is developing here. This is a bearish pattern and often indicates the reversal from a bull trend to a bear trend.

You can calculate the projected move by taking the difference between the top of the head (950) and the neckline (880) and subtracting it from the neckline. (Here's how the math works: 950 minus 880 equals 70. Then, 880 minus 70 equals 810.)

So if the index drops below the neckline, the intermediate bear trend is in force, and the pattern projects a move all the way down to 810.

Granted, a move down to 810 isn't exactly a disaster. After all, the index was at 670 just three months ago. I suspect, though, most investors didn't get on board back then. They likely bought in a bit higher, and a 10% correction right here will wipe out most of their gains and quite possibly put them underwater.

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On the other hand, if the S&P can move on and break out solidly above 950, then that action will invalidate the head-and-shoulders pattern, and the path of least resistance will shift higher. Given the multiple bearish technical indicators we've covered over the past few weeks, an upside breakout is a low-odds proposition.

It makes more sense to me to bet on the downside right here. That's been my story for the past few weeks, and I'm sticking to it.

Best regards and good trading,

Jeff Clark

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•	Lumber up 60% this year... flooring compnay Lumber Liquidators hits a new high.
•	Crude retakes $70... oil headed back over double levels from December low.
•	Drugmakers are on a tear... sector fund XPH up 25% from March low, heaps of pharmas making new 52-week highs.
•	Dell gains 20% in June, HP up 51% since March.

	Last	Change	52-Wk
S&P 500	927.02	+0.73%	-27.48%
Oil (USO)	38.72	+3.23%	-65.96%
Gold (GLD)	92.22	-0.08%	+0.82%
Silver (SLV)	13.70	-1.45%	-20.96%
U.S. Dollar	78.93	-0.67%	+10.37%
Euro	1.41	+0.67%	-10.81%
VIX	25.52	-3.19%	+8.87%
HUI	352.73	-0.22%	-21.80%
10-Year Yield	3.49%	-0.02	-0.44

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Company	Sym	Industry
Poniard Pharma	PARD	pharma
Shuffle Master	SHFL	gambling
BWAY	BWY	packaging
Aruba	ARUN	networks
CorpBanca	BCA	banks
Vertex Pharma	VRTX	pharma
Avanir Pharma	AVNR	pharma
USA Mobility	USMO	telecom
Spartan Motors	SPAR	trucks
Evercore	EVR	asset managers
MedAssets	MDAS	health care IT
Cerner	CERN	health care IT
ClickSoftware	CKSW	software
Anaren	ANEN	telecom
Stein Mart	SMRT	clothing retail
Acme Packet	APKT	telecom
HMS Holdings	HMSY	business services
Watson Pharma	WPI	pharma
Frisch's	FRS	restaurants
NVE	NVEC	semiconductors
American Capital	AGNC	residential REIT
Lumber Liquidators	LL	wood retailer
SolarWinds	SWI	software
Changyou	CYOU	software
Gander Mountain	GMTN	sporting goods
ChinaCast Edu	CAST	online education
ShoreTel	SHOR	telecom
Lincoln Edu	LINC	for-profit ed
RF Micro Devices	RFMD	semiconductors
Dr Reddy	RDY	pharma
Orchids Paper	TIS	paper products
Spectrum Pharma	SPPI	pharma
IMAX	IMAX	movie theaters
ImmunoGen	IMGN	biotech
Ocwen	OCN	mortgages
Allscripts	MDRX	health care IT
Schering Plough	SGP	Big Pharma
Kirklands	KIRK	furniture
KongZhong	KONG	media
RehabCare	RHB	rehab centers
3PAR	PAR	data storage
AmeriGas	APU	natural gas utility
McAfee	MFE	software

Company	Sym	Industry
Tutor Perini	TPC	construction
Chemspec	CPC	chemicals
Heckmann	HEK	acquisitions
BancTrust	BTFG	bank

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