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Thursday, May 17, 2012

SPX - One simple reason for this correction



SPX has gone up by about 32% since establishing a low in Oct'11 with a few minor pull backs along the way leading up to the Apr'12 top.  Several leading growth stocks like AAPL, PCLN, CMG, LNKD, BWLD etc outperformed the market during this upward thrust.  A simple reason for the correction, having gone up 30% plus the market needed to take breather.  Nothing goes up straight forever.  A 10-12% intermediate correction was not out of character for the market. The Fibonacci retracement drawn from oct'11 low to Apr'12 high shows 1290 zone to be a 38.2% retracement which also happens to be about 10% correction zone from the Apr'12 highs.  The macro economic theme also played its part in the correction.  The news coming from the Euro zone, JP Morgan debacle, disappointing economic data etc seem to add fuel to the fire.  If you notice even before all the news came out the market was putting in a top.  Breadth did not conform to the upside move.  Leading stocks started cracking one by one.  Distribution was taking place.  Some of the sentiment indicators I follow like the investors intelligence survey  showed complacency on the part of bearish players.  There was absolutely no fear in the markets while the market started to go down in earnest.  All of these factors contributed to the downside move.  The 1290 area is the one to watch for how the market would react around this level.

3 comments:

Anonymous said...

Excellent!

Bala Krishnan said...

Very good analysis. From technical point of view market made head and shoulder pattern and the measured move towards the downside was the exact height of the H&S pattern. Also, market tested october'11 high which is more of a support now.

Kannan Thirumalai said...

thanks.