So where are we heading to?

The S&P 500 gets a little support today and closes at 1260 after nine losing days. Even though the market is up today, it does not mean that we can start to buy and wait for the position to surge. Today's rally only shows that investors feel uncertain about the economy and the employment data coming out on Friday. As I have covered in my previous post that we still need to be careful about the US economy even the US has avoided a default on Tuesday.
The compromise on the Capitol Hill does not change the fact that US has a large gap in its budget deficit. The economy is getting weak and I do not see any good reason for the job market to improve.
So what should we do now? From a pure technical point of view, we are still in a very bearish environment. The Double Top Pattern and a break out of the support line have told us that the market is still negative. Tomorrow's initial claim will likely to be disappointing and investors’ bearish mood will get confirmed.
Gold is still my biggest buy as we can see it makes new high every day. We can also put some value stock in our watch list, such as Google, Apple and Microsoft. These stocks have been brought down by the broad market and they will offer a good return once the market comes back.

What are we expecting in July?

The Dow Jones Industry Average rallied on Wednesday after two consecutive months of decline. The Dow surged 274.66 points and ended above 10,000 out of the optimism of the US economy. so, is this optimism justified? Is today's trading a bullish sign? My opinion is not just a 'NO', but not yet.

If we take a look at the historic data, we will find that there has never been a bearish market that lasted more than three years, not even the 1929 market catastrophe. The longest market contraction happened during the 2000 technology stock bubble, which lasted about three years and followed by a big bull market (Shown in the graph below). If this is true, then we can expect to see a bull market soon because it is almost been three year since the market started to tumble during the end of 2007. Therefore, for the worst,we have yet 4 or 5 months left to see the bull coming back. However, we do not need to be that pessimistic. The martket is very likely to rally before the end of this year, if certain conditions can be met.


As for now, I am sticking with my bearish view about the market. I have always held the view that the market will have another big tumble in 2010 after a bullish year in 2009. I was proven to be right as the market went down in May and June. Despite today's big surge, I am still very bearish. Today's big increase is very likely to be a retaliatory surge after the market touched resistance at about 9700. However, it is going to face another price celling at about 10,450. If the market fails to achieve this level in the next couple of days, I will say there will be a big market decline. The Dow could be as low as somewhere around 8500 before the expected bullish market coming in the end of the year. However, if the Dow rises above the celling price in the coming weeks, it is very likely for us to jump right into the bull market I just talked about.


Until then, my suggestion is to be consevative and be prepared for another market dip.