The Stock Market Uncertainty Will End

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Last week we saw the S&P 500 rally 6.4% off of its August low. Before that rally started the S&P 500 fell 8% off of its August high. And of course before that we saw a big rally in July, a big move down in June and the scary “flash crash” day in May. Despite last week’s rally the market is still well off its April highs. It has spent the past few months going through scary drops and big rallies that have caused investors to swing quickly from fear to hope and back again.

There is nothing more exciting for the typical investor than to see the market rally big in a single day much less over the course of the week. Such rallies bring visions of further gains to come and ease their anxieties over past declines. They encourage them to keep holding what they have even if they have losses and to bet more on the market in the hopes that more gains will come.

The wild gyrations we have seen the past few months need to be put in context with the longer-term chart of the stock market – which for almost a year now has simply been going sideways. Since October 2009 the stock market has basically gone nowhere. The rally in April to new highs was nothing but a fake out move that caused people who bought into it to lose a lot of money.

1040 has acted as support on S&P 500 since Nov 2009

As you can can in the above chart the S&P 500 has been going sideways for almost a full year now. During this time the 1040 level has acted as powerful support for the market. It marked the support level of the most recent low. The equivalent level for the Nasdaq is 2100 and the 9700-9800 area for the DOW.

This sideways pattern is not going to continue forever and is likely to end one way or the other over the next few weeks.

We have either seen the final low for the market for the rest of the year the other week or are right now are witnessing its last rally before it slips into a vicious full blown stage four bear market.

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