Mar 21

The Market Today 3/21/13: Support


Today was a rough day in the market, about a 1% loss for the S&P. What brought about the selling? It was the obvious suspects: Cyprus, and earnings. First, with Cyprus they are working furiously to find a solution to their financial crisis. It look’s as is they will split their third largest bank, Laika, into a bad bank and good bank.They are looking to monetize their vast natural gas reserves, and work with Russia on aid. Couple this with the ECB giving them a deadline of Monday, to come up with a solution. Should a solution not be found. The financial system of Cyprus very well might collapse. Without question, this will have ripple effects globally. Then, we have earnings. Yesterday, we had three major companies release earnings: FDX, CAT, and ORCL. All three earnings reports were horrible. It appears that growth abroad in practically non-existent. This is not a good sign at all. With all these major companies, the vast majority of their profits comes from abroad. If their earnings from abroad are dropping, this will cause not only their stocks to drop, but bring the rest of the market down with them. This is very concerning. With this news, I am surprised this reaction did not come yesterday.

Support: Technicals

What levels on the market should we be watching for? Look at the chart. We have a ascending trendline, that shows the next major support at the 1,520 level. The next levels of support to follow this, as indicated on the chart, are the 1,500, then we see 1,420!! Until the ascending trendline is broken, buying the dips is the strategy to use. Remember, Ben Bernanke said this week that the Fed will continue to buy bonds at the current pace. The current pace at this point is about $85 billion per month!! Due to this, this will act as a protective put on the market. As I have mentioned before, while quantitative easing is active, the returns on the market have been very strong. It is only when this is not in effect, does the market go down. In fact, in early February, there was a brief thought, the the Fed would start slow down the pace of the quantitive easing would slow down. The reaction of the market was swift. It did sell off. The S&P sold off about 45 points!! Once this rumor was set aside, did the uptrend re-assert itself!! So, while the quantitative easing will be in place, you will make great money in the stock market.Buy the dips!!!

Support: Final Remarks

Other tidbits you might be seeing in the financial media, is other reasons for the market putting in a “top.” First, you have form Fed Chief Alan Greenspan, not saying that their is “irrational exuberance, ” which is a phrase he made famous in 1999, just before the market cratered over 50%!! Then, there was actress Mila Kunis. She stated in a CNBC interview, that she moved from cash to buy stocks. When people indicate ridiculous things like those mentioned above, as market tops, lunacy has set in. Just because Greenspan and Kunis said this, or did that, this in and of itself does not mark a top!! Let the market tell you that a top in indeed, in place. This is not the case yet. The next levels of support need to be broken before a top is indeed, in place! Until this happens, buy the dips. Just keep in mind, exercise caution and discipline before entering at any position.

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information and expert advice on investing in equities and watching the important support levels.

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