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Crowder Investment Research (Crowder's Corner)

A few reasons why a short-term correction looks highly probable

Not much has changed since my last post. The market trickled higher again today in the face of several short-term bearish indicators. The S&P has been higher for five straight sessions and the Dow has been higher for 8 straight sessions, a feat not seen since early 2003. I have included a portion of my post from yesterday as I think it is worth repeating.

The following are just a few of the reasons for my short-term bearishness (1-5 days).

1. Upside gap on 4/3/07 in SPY that has yet to close.

2. Short-term proprietary indicators have reached an “extreme” state.

3. SPY has lived in “overbought” to “very overbought” the last five sessions.

4. Current rally has occurred on low volume.

5. Narrow trading range that often precedes a sharp move.

Tomorrow could be quite interesting. At 2 PM EST the fed minutes will be released which has recently caused the market to move. I think if the report is positive and the market moves higher we should start to see some decent resistance at the 1453-1455 area. This will obviously extend the current "overbought" state of the S&P (SPX) and will mostly likely lead to a false breakout at least over the short-term.

The recent high which occurred on 2/20/07 was 1459.70 although the broad market index was able to push as high as 1461.57 intraday. Typically, the market struggles with the initial approach towards the recent high and I expect to see a similar situation this time around. The short call strike on our SPX Short Iron Condor is 1460 so we are certainly closer than I prefer to be with 7 trading days left until settlement. The next few days should be very interesting.

Overbought/Oversold levels for April 10, 2007

  • SPY - 83.9 (very overbought)
  • DIA - 78.6 (overbought)
  • IWM - 77.9 (overbought)
  • QQQQ - 76.0 (overbought)
  • GLD - 76.0 (overbought)
  • OIH - 79.6 (overbought)

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Published Tuesday, April 10, 2007 10:34 PM by acrowder
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At Crowder Investment Research, LLC (www.crowderinvestments.com) we offer our thoughts on several stock and options-based strategies that might complement your long-term investment objectives. We provide you with the trading tools necessary to produce returns that attempt to outperform the major indices on an annual basis regardless of the economic environment. Our extensive research of numerous options-based strategies has shown that uncomplicated strategies, when applied effectively, consistently provide greater gains. Read the thoughts and ideas of our Chief Options Strategist, Andrew Crowder. He will provide you with educational tools, useful technical and seasonal indicators, and a wealth of investment research (updated daily) to increase your stock and options trading knowledge.

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