Beware Of Buying Stocks!

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The stock market has incurred heavy technical damage during the recent sell-off, suggesting that any move higher is going to be a tough slog. On Yahoo Finance's Breakout show, Jeff Macke and Matt Nesto spoke to well-known technical analyst Louise Yamada. Her message? Buying stocks here isn't really worth the risk. She told the Breakout crew that we are "finished with a cyclical bull and entering a cyclical bear." Since January of this year, the market has been rallying on lighter volume, while selling off on heavy volume, suggesting that the bulls are losing the upper hand in the battle for Mr. Market. The recent plunge in stock prices has also done some serious technical damage. First, the bull market trendline from 2009 was sliced through around the 1,300 level in the S&P. Next, major support was broken at 1,250, which led to a cascade of selling. Now, the market is carving out a "Death Cross," which is when the 50-day moving average falls beneath the 200-day moving average. Despite its ominous name, this particular indicator's record has been pretty spotty in recent years, but was a great exit point in 2008 before all hell broke loose. What could be a bigger problem for investors hoping to recoup their recent losses in the near term are the new staunch resistance levels that previously served as market support. The first of these is 1,200 on the S&P, which has already been rejected fairly convincingly on Tuesday. That is going to be a tough level for the bulls to break through. At last check, the S&P was trading at 1,186 after closing just above 1,200 on Monday. Next, the S&P would have to re-take 1,250, which previously served as long-term support and will likely be very strong resistance on the way back up. If the macro outlook does not improve significantly, it is hard to imagine that this is going to happen in the near-term. Yamada suggests that, for now, the sidelines is the best place to be. "There are only two losses that you take," she sagely observes, "Loss of capital and loss of opportunity. I'd rather be out of the market wishing we were in, than in the market wishing we were out."
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Posted In: TechnicalsEconomicsIntraday UpdateMoversTrading IdeasbreakoutJeff MackeLouise YamadaMatt NestoYahoo Finance
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