Securities Research Services

Monday, April 14, 2008

GE Stiff Arms Bulls

When we began providing an assessment of risk a few months ago one of the premises of the risk assessor is that prices tend to return to the 50-week average during bear market declines.

Note that since we have begun tracking the progress of this bear market decline, the price has not yet been able to mount a rally strong enough to tag the falling 50-week average. Moreover, what has been happening is that the 50-week average has been slowly, but surely moving lower.

What we have here is a time correction rather than a price correction. The market has been range bound since late January. Over the past couple of weeks the market has been acting better, so we had considered the possibility that price would finally correct upward to tag the 50-week average, but with Friday's GE debacle prices failed at support and took a turn down once again.

When one of the largest cap firms in the world reports a strong reduction in projected outlook, the market has to stand up and take notice. It may be able to shrug off GE's warning if this week's earnings reports are stronger than expected, but for now it looks like prices are headed back to the bottom of the range again and that the time correction will continue as it has for the past three months.


Note that a time correction vs a price correction is the most bearish of the two possible scenarios. Ultimately we are probably looking at support at SPY $126 giving way for even lower prices this year. There is nothing bullish about the long term outlook of this market.

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