The market see-saw tilted back toward the upside Thursday. After taking a fall below 10,000 on Wednesday, the DOW was up more than 200 points in afternoon trading.
In the near term, this bounce could have legs, says John Roque, managing director and market technician with WJB Capital Group. "But we think the corrective phase is incomplete."
Roque believes the rally could take the S&P 500 as high as 1120 or 1130 in the near-term. However, "the rally's not going to be particularly satisfying, long-lasting (or) encouraging," he predicts.
For clues on the broader market's path, Roque closely follows Goldman Sachs, Morgan Stanley, Monsanto, Mosaic, Freeport-McMoran and copper prices; this group has tended to lead in and out of rallies over the last couple years. The signs coming from these so-called bellwethers, "suggests to us the S&P doesn't hold this 1050 level on this next retest," he says, predicting the S&P will fall until it finds support around 990.
One technical reason Roque is so down on any rally effort is the percent of NYSE stocks trading above their 200-day moving average. Through Wednesday 45% of Big Board stocks traded above their 200-day MA. "That number needs to decline below the 35% threshold," a level that has been a strong indicator of oversold conditions for the last 30 years. "It can get much lower, but at least at 35%, you'd say to yourself most of the damage has been done."
The good news for savers and those living on a fixed-income is the dollar does continue to look good against other currencies, according to Roque. "The dollar is benefiting from being the tallest midget," he jokes, predicting the euro will eventually fall to parity with the greenback.
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