Monday, September 21, 2009

Two Major Technical Forces Are About to Stall the S&P 500 Advance

First is the Fibonacci retracement Level of 50% at about 1122 and
Second is the Daily Trendline from the October 2007 High.

Today's weak performance of the S&P 500 and the Dow confirmed short-term outlook that the bearish side stands to gain some momentum soon and that the market is now setting up for a downside reversal.

On the S&P 500, we saw a volume output of 3,806 million shares today, 10% below the index's average daily volume production over the past three months.

While the broad market faced some selling pressure today, strength in biotech stocks boosted the NASDAQ Composite which rose 0.24%. On the S&P 500, only the healthcare sector gained ground.

Technology stocks as a group also traded marginally higher, with the notable exception of Dell, which announced it would buy Perot Systems for $3.9 billion (or $30 per share in cash). The transaction amount represents a 70% premium to Perot's stock closing price from last Friday. Perot is a technology services provider headquartered in Plano, Texas and has more than a thousand customers, among them the US military and the Department of Homeland Security. Close to half of Perot's revenues (in 2008: 117 million on sales of 2.8 billion) come from the healthcare industry; a quarter is from government contracts.

Energy and materials stocks saw the steepest losses today, oil futures dropped below the $70 per barrel. In fact, commodities were weak across the board with the CRB Commodity Index down more than 2%, its strongest single-session loss in more than a month. Commodity weakness was exacerbated by gains in the US dollar.

In economic news, the Conference Board announced that its index of leading economic indicators was up by 0.6% in August. While the number is 0.1% below economists' expectations, it is still considered a further sign that the US recession may be over, or nearly over. It was a fifth month in a row that the index of leading economic indicators has increased.

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