Posted on: Friday, May 29, 2009 12:16 AM EST
The stock market seems to be at a crossroads. Technically it is a mixed bag leaning to downside action.
S&P 500 Chart Below
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Z-Score shows the S&P 500 index is riding the fence. +2 would be overbought, -2 oversold. Sitting at 0 shows the price action has had little movement.
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RSI sitting over 50 still shows strength
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Arron Indicator crossed below the 70 mark which indicates a market down trend
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Volume is flat reflecting the market middle ground as Z-Score
We have stop loss orders on long positions and purchase some short ETFs (more on that).
There was no improvement in the MTR Economic Model (MTR-EM) with the data released for April 2009. Year over year wages and employment have not improved. We expect to see a further deterioration in year over year real-wages (green line) due to gas prices extending over $2.60 a gallon in most areas. This will lead to a drop in consumer spending and typically impacts stock prices to the downside.
We have made some cash trading in and out of oil ETFs (PXE and OLO) long and (DDG) short. Oil supplies are at a high level and it seems the current price per barrel is under pressure unless some of the "green shoots" (do you hate that term as much as me?) starts to spout some fruit or vegetables.
We closed out half of our PXE holdings and purchased the short ETF DDG. We may be early looking for a downturn in crude but it seems it has move too far too fast. The excess oil supply seems to support some downward movement for crude in the short term. Unless, yes, those Green Shoots again...
ProShares Short Oil and Gas ETF (DDG) is reaching a -2 level on the Z-Score. This is nearing a level that supports crude prices will retract. We purchased shares in DDG today with a tight stop to see if we get a bounce to the upside on this short ETF if crude pulls back.
