Friday, November 2, 2007

Two Charts of the SPYs That Should Cause Some Concern

This is a 9-year chart of the SPYs. Traders have many adages. One of them is, "markets have memories." What this means is previous price levels are important. The above chart illustrates this point. Notice that a high achieved nine years ago is providing a ton of upside resistance for the SPYs now. Remember that chart, and then look at this one:

This is chart that shows a double top formation that occurred right around the previous highs. The markets tried to get through previous levels twice and couldn't make it. Now the markets are selling off in what is starting to look like a downward pattern of lower highs and lower lows. We don't know if that is how this will play out, but there are some strong bearish currents in the market right now. The financial sector (which comprises 20% of the S&P 500) is under extreme pressure thanks to subprime mortgage exposure. The energy sector -- which is one of the top performing sectors of the last year -- is taking earnings hits this quarter. Exxon and Chevron both reported sub par earnings.

The point is there are plenty of reasons for the market to move lower right now.