Technical Update

Yesterday was ugly plain and simple. With the two day pounding it makes sense to revisit the current retracement levels and our oversold indicator.

The S&P 500 has now fallen below its 50% retracement from the June low to the August high. The 61.80% retracement is not much lower at 1617.38. I would prefer to see this level violated and get it over with. The likelihood of a 100% retracement to the June lows still seems unlikely to me.

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Second the oversold indicator tracked is again oversold. Once under 30 it is oversold and currently it is at 25. It needs to move back above 30 to be an aggressive buyer.

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Last, we have a couple comments this morning from Fred Meissner of www.thefredreport.com. Fred is formerly Merrill Lynch’s technical analyst to its financial advisors. A couple comments from his morning note today caught our attention.

“A close on Friday below 163.45 on SPY would be the 18th time the May – August period has been negative since the inception of the S&P 500 in 1927, and around 58% of those years were actually down years. You can see the table in our article in the June 2012 Monthly Review, “Buy in May is totally OK.”

“In any event, the chance of an “average” summer rally of 8.29% from the May 31 close, a close of 177 on SPY this Friday, is slipping away. We remain intermediate-term defensive in portfolios, and are still comfortable with our November 2012 forecast that the first half of 2013 will be stronger than the second.”

I find the fact that markets have given up July’s gain of 4.93% troubling. In June, the S&P 500 lost -1.50% and now in August the S&P 500 is down -3.28%. This is “fugly”.

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