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Market Direction

Has the Market Entered Bear Phase or
Just a Bear Trap

August 23, 2015

Market crashed last week. Selling was intensified when major indexes broke down its 200 day moving average support last Wednesday. All major indexes suffered huge weekly loses. NASDAQ went down 6.78%, S&P 500 lost 5.77% and Dow fell 5.82%. Last time market suffered such a big loss was also happened on August, 2011 when S&P 500 was down 20.3% in two months, from July 5 to October 3.

Market is way oversold now. S&P 500 at 1,970.89 far below its Bollinger Bands low of 2022.39, its RSI at 24.84 closed at below 30 and ST reading at 14.76, all showed an oversold condition. We may see an additional down move tomorrow as Monday was always a bad day for the market. But we will have a high confidence that market will bounce back strongly starting from Tuesday.

Whether or not market has entered bear phase will be depended on how high the bounce will be. MA-200, now at 2,077.85, will be used as the important testing level. Most likely we will see the real bottom at early October, a repeat of 2011 correction.

Gold - $1,159.90. Gold has been very strong since July 24 low. It had also have a vertical run last few days and RSI is about to enter its overbought territory. Our view is that gold price will be topped this week when market and US dollar start their rebound later this week. See its daily chart below.

Crude Oil - $40.22. The chart still showed a clear down trend with no clear rebound at all. Will we see oil price drop to below $40 this week? Most likely.


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