Securities Research Services

Tuesday, October 07, 2008

The Spring is Wound Tight

The further away from the 50-week average the SPY trades the bigger the rebound rally that will follow.

Right now the SPY is an astounding 30 points away from this area where it has historically regressed to in bear markets. Moreover, the price is over 9 points below its weekly Bollinger Band support. This is a classic oversold condition.

The spring is wound tight in this market and a rebound is surely just around the corner.

Today we panned back to the monthly view to see where we might find support. During the last bear market the SPY tagged the 200-month average two times right before a new bull market kicked off.

It’s too early to tell if this is the final capitulation in this bear market, but the 200-week average appears to be drawing the price in like a magnet. In our opinion, a touch down at that average would make for an incredible buying opportunity.

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