Stocks Collapse From Gap Higher: The Truth Behind It

The markets opened nicely higher on Monday morning. This followed the S&P 500's first down week in almost two months. After an initial gap higher, the markets have collapsed and turned negative on the day. The SPDR S&P 500 ETF Trust SPY is trading at $151.49, -0.40 (-0.26%). Why has the market moved into negative territory on sharp selling?

Reasons For Market Reversal

1. Last Tuesday marked a Cycle Date. Cycle dates tell us of trend reversals. The trend topped out last Tuesday and has since been lower. The markets are now fighting an uphill battle in the short term and should continue to remain weak until around the $146.00 level on the SPY.

2.  The Dollar spiked dramatically higher after the U.S. stock market opened. A strong Dollar means a weak market. This inverse relationship has been in existence for years.

3. Italians are voting today. Fears are swelling as exit polls showed Berlusconi’s coalition has the lead in elections. He has sworn to cut back on austerity measures which threaten the unity of the European Union. This could be a disaster for the markets.

4. The Sequester is set to take hold on March 1st, 2013. This is on Friday and represents automatic spending cuts across the board to the tune of $85 billion. Each time the U.S. faces automatic spending cuts, the politicians kick the can down the road. It is looking more and more like this time it will happen. $85 billion less in government spending means slower U.S. growth.

The first reason was the Cycle Date. Everything listed after are the catalysts that coincide with the master Cycle Date. When you know these dates, you know where to position yourself for maximum profit. Institutions cannot do it better.

Gareth Soloway
InTheMoneyStocks