From June 15 to June 21, 2010, the major stock indexes traded in a narrow range. This range was slightly above previous intermediate highs formed on May 20th and May 27 through June 3. The market clearly was showing signs of strength, possible signs of a breakout. The length of time trading in this range, however, indicated that investor sentiment was not overwhelmingly toward higher prices.
Falling Stock Market Prices Begin on June 21, 2010
On June 21st it appeared the breakout was finally beginning. Such indexes as the S&P 500 and the Russell 1000 reached their highest prices since May 19th. Had the market continued up on that day, it would have been the breakout investors had been hoping for.
But the market did not keep those gains. By the end of the day the major indexes were down, close to the level of previous resistance. Clearly investors did not believe the news—the economy, world stability, and politics—warranted putting more money in the market.
June 22-23, 2010 Sees Stock Price Downtrend Form
As seen in Figure1 for the S&P 500, and Figure 2 for the Russell 1000, both highly watched market indexes, the next two days were both down, the volume of shares traded holding fairly steady. This indicated a change in investor sentiment. Since the market could not rise above the previous resistance, investors now appear to believe that stocks are somewhat overpriced. People began to sell on June 21st, and this trend looks to continue.
How Low Will the Market Fall in the Short Term?
Predicting where the stock market will move is not a wise thing to do. Any news, positive or negative, big or small, seemingly major or inconsequential, can cause investors to change their mind immediately and reverse their orders, selling instead of buying or the opposite. However, traders (and to a lesser extent investors) must have a sense of where the market is moving in order to place trades.
A likely scenario is that the market will fall to about the same place it did on the two most recent intermediate lows, on May 25 (a hammer day) and June 8, 2010. That would be a drop of around 50 points on the S&P 500, almost 5% below the close on June 23rd. Other indexes are likely to have the same type of drop on a short-term trend.
Traders should be cautious, however. The economy is volatile, perhaps pulling out of a recession, and some good economic news could quickly reverse the trend and send indexes higher. Politics in the USA, always a hot topic, could have a similar result in either direction. Traders should perform their own market assessment, and conduct their trading business based on their own analysis. As always, this is a good time to be conducting stock charting research.
David A. Todd - David Todd is a civil engineer, a genealogist, a citizen concerned with the environment, and a writer by passion.
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