Short Term Market Forecast

January 28th, 2010

Our short term stock forecast has two very distinct parts. First, we believe the last week’s sell off we a little out of the ordinary in nature and strength (which is a very good thing for this inflated market) but still has brought us into an over-sold condition. As such we seen the S&P climbing quickly back near the 1,130 level in the next week or so. See intra-day chart below.

Now we all know that State of the Union addresses tend to spur market sentiment for the bulls – all the great rhetoric and speaking gets us all giddy inside. But the truth of the matter is that NOTHING is going right fundamentally. Yes maybe somethings are showing improvement but only because the government is pumping debt in left and right. This is NOT fundamental growth.

In addition, sentiment indicators show that over 85% of all investors are still bullish on the economy and markets – this is a big problem. We all know we should trade away from the herd mentality. With that we offer this opinion: The markets will move back to 1,130 area before hitting a brick wall and starting the slow and painful correction that could last throughout the rest of the year.

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