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How to Make Decisions in the Current Market

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Last Friday, the trade market bounced back from one of its worst declines so far this year. This bounce back was led by the financial sector which was one of the worst hit during Thursday’s sell-off. This is another indication that the capital flight out of Europe and other overseas places remains in high gear cone crusher, as these investors are moving their money to the U.S. for safekeeping, because the U.S. is still the safest place on the planet for their money. It also shows that this market does not want to be kept down and keeps popping up. But check these charts and note that for as long as the green, red and yellow Moving Average lines on these indexes remain in their bearish configurations, the market has no chance to initiate a sustainable rally.

Also, the relentless drop in the price of oil reflects a bearish scenario for the global economies and consequently for the stock market. If OPEC controls up to a point the supply and thereby the price of oil, that’s one thing and the market may be able to cope with that. But if the global demand for oil is diminishing as it appears to be the case now, the market will respond with a very choppy trading environment and wild swings in either direction, as was the case last week.

Another reason why the financial sector led the market out of a hole last Friday was that Moody’s Investors Services engaged in credit downgrades for some of the world’s largest banks. These downgrades had been expected, but were mostly less severe than the market had anticipated, so it rallied. Ever since last February these banks were supposedly exposed to the risk of large losses from adverse capital markets activities. So now that it appears this headwind to the financial sectors of the market has been removed, the market’s focus is shifting back to Europe, and here things are getting dicey. hammer crusher:
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In Europe, a new game of chicken is being played out, which could have dire consequences for the world’s financial structures. The assumption was that with a new pro-Europe government elected in Greece, less stringent European bailout conditions could be negotiated. But that is not the way things are starting off. The new Greek government flatly declared that it will not comply with most of the onerous bailout conditions set by the largest European countries, while the leaders of these nations are adamant not to renegotiate these conditions to the point where Greece will be willing to comply with them. So both sides appear to be on a collision course, and is one of the reasons why the market is engaged in such choppy trading action.

Check these three Troika charts, SPX BGU bulls and BGZ bear below, and note that they are at a standoff, with the bulls at the bottom looking up, and the bear on top looking down. Now it is a waiting game to see when the green, red and yellow MA lines for the two bulls are turning into a positive configuration, while turning negative for the bear. Until this happens, expect the market to continue its volatile swings while mainly moving sideways.

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  • Posted On June 27, 2012
  • Published articles 10

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