Weekly Stock Market Forecast (Resistance Edition)

By: Graham_Summers

The first and most critical item to note is that stocks have hit up against their upper trendline as denoted by their August, November and current tops. By most counts, this is THE upside target for this rally.

This level also happens to coincide with MAJOR resistance on the long-term weekly chart for the S&P 500, the level last seen right before stocks fell off a cliff in the 2008 Crash:

Of course, we could see a breakout from here. After all, the Fed is pumping $112 billion into the market during 18 of the next 19 trading sessions (with that kind of funny money hitting risk assets just about anything is possible).

However, given that the market is as overstretched as it’s been since the Tech bubble and that we’ve seen stocks remain above their 10-DMA for 30 straight days (the only time this has happened in 82 years as noted by Sentiment Trader), the odds favor a correction here to at least 1,250 (the bottom trendline) if not 1,225 (last major top).

Much of this hinges on the Euro, which suffered the mother of all short squeezes last week, rallying a ridiculous 3% in just four trading sessions (an absurd move for a currency) thanks to literal intervention from Asia and verbal intervention from European Central Bank head Jean-Claude Trichet.

However, the Euro has now come up against resistance: this current level has stopped the currency dead in its tracks three times in the last month and a half. This doesn’t mean that we can’t break this level. However, even if we do, we’d soon be at MAJOR resistance at 137.5.

Remember, regardless of short-covering bounces, the Euro HAS violated the trendline that support it from July onwards. This technical damage of that move was severe and makes the odds of additional downside significantly higher.

Speaking of violated trendlines, Silver has not only broken below its trendline but has since failed to reclaim it.  We have support at 28 but could easily see a drop to 25 and change if we break down from there.

This adds further support to the forecast that stocks could drop sharply from here. Remember, silver lead stocks to the upside during this latest rally. So silver’s breakdown does not bode well for additional gains in stocks in the near-term.

Indeed, I view the latest pullbacks in Silver and Gold as MAJOR buying opportunities for both inflation hedges.

Good Investing!

Graham Summers

http://gainspainscapital.com

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Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

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