Two weeks ago I was preparing for a short vacation and hoping that by the time I made it back, the market would have made a decisive move either up or down. Unfortunately, that has not occurred and stocks still seem to be struggling to find a direction.

Ever since the market began to rally in March, we warned that the long-term trend remained negative and risk did not warrant jumping back into the market. The basis for that reasoning are numerous economic factors that continue to reflect an economy mired in recession rather than one that is about to start a new growth surge.

Today’s unemployment numbers might be the catalyst for helping investors and traders to see things as they really are. It is hard to make an argument that the recession is over when 9.5% of the population is jobless. 

The chart below shows performance of the S&P 500 index during 2009. This type of charting is called “candlesticks.” A description of this type of charting can be found at: http://en.wikipedia.org/wiki/Candlestick_chart. For our purposes today, all one really needs to understand is that the red candlesticks reflect days when the S&P went down and white or open candlesticks show days when the index rose.

By looking at color alone, one can see that market weakness prevailed for the first couple months of 2009. In March and April, the white candles were prevalent. In May and June, however, the picture is mixed and the index has made virtually no headway. The picture for the year is two months negative, two positive and two sideways.

The gold line is a simple 50-day moving average. Two weeks ago the 50 and 200-day moving averages had converged and the S&P 500 was resting right on both. Over the past two weeks, the index moved slightly above both moving averages, but today’s action brings both back in convergence again.

 
The bottom portion of this chart is a moving average convergence divergence (MACD). It continues to move toward a negative level, indicating that weakness is in control. This indicator has not reached an oversold level indicative of a market turnaround. So even if this sell-off does not accelerate, it would not be unusual to see the S&P 500 continue to drift in a sideways pattern for another few weeks. 

Markets will be closed tomorrow for the Independence Day holiday. Have a great holiday and remember to be grateful for the freedoms we enjoy.
F.S.