Too Early to Turn Bullish

07/02/2013 8:30 am EST


Jim Jubak

Founder and Editor,

Despite the impressive rebound as we head into the end of the month, MoneyShow's Jim Jubak shares some reasons why it may be too early to conclude that the selling is over.

As the month of June moved to a close, you could hear audible sighs of relief pretty much around the globe, because it looked the huge sell-off that we’d seen was...well, if not ready to move into a rally, at least drawing to a close.

On the S&P on Tuesday the 26th, for example, we had the index move up to 1,608 or 1,609, and close at 1,603. These levels are important because, well, that’s pretty much a big recovery from where we were. In fact, it retraces about 50% of the loss that we had from the June highs. So as the month came to an end, you were looking at the possibility of all this bad stuff being over.

I hate to be a nasty Nelly, or a nagging Nelly, or whatever poor Nelly is supposed to be. We’re now at a critical point. The question really isn’t whether we’ve recovered, but where do we go from here. And we’re looking at a series of resistance.

Remember that technically, when you go down below a level that was support before, it goes from being the floor to being the ceiling. You then start bumping up against it, and you’ve got to move back. So 1,608, 1,609, 1,610, 1,611 are now serious resistance.

They mark, as I said, a 50% retracement of the worst of the loss in June. They represent the 50-day moving average on the S&P. They represent the low earlier in June. All these things are levels that we have to get back through. And if the market is really going to move from being well, just not falling through the floor and maybe going nowhere to actually seeing something like a rally, we’ve got to take these out. We’ve got to take them out fairly convincingly.

As we move from June—where usually at the end of the month you have a market, investors and traders try to move the market up, so that’s what I think we’ve seen. What you want to look for in the first days of July when this is all gone, you don’t have the portfolio window dressing, is you want to see if the market can move up through 1,610 or 1,612 and start to look on this not as a ceiling but as a floor again.

Then we can talk about whether we’re going to move back to the old highs of 1,650 or 1,660 sometime during the summer, or whether we can basically write off July and August.

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