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A Sell Sign from the S&P 500?

Posted by: Tara Kalwarski on December 15, 2009

The Standard & Poor’s 500-stock index closed above 1,114 yesterday, and Evergreen Investments chief market analyst John K. Lynch is waiting for the benchmark his 1,120. What’s so special about that level? Lynch says 1,120 represents a 50% retracement. That is, the S&P 500 fell to 676 in March from the October 2007 peak of 1576. So 1,120 is about the half-way back marker.

History has shown that initial resistance to crossing a marker—the S&P 500 has been within 2% of the 1,120 level for more than a month now—can quickly be replaced with support. Similar to how quickly the market fell from 1200 to 900 last year, the same goes for the upside. Meaning if we reach 1,120, 1,200 won’t be far behind, say Lynch. Especially given the amount of cash on the sidelines.

But investors who missed the runup shouldn’t throw everything in now. “With a 10% unemployment rate and the likely chance the Federal Reserve will raise rates, I think 1200 is as good as it gets,” says Lynch. He thinks that at that point, investors should be prepared for a pullback to about 1000.

Lynch explains that the best thing individuals can do in the meantime is to make sure their portfolios are fully diversified. “Don’t wait until the end of the year to rebalance,” he says.

Reader Comments


December 15, 2009 1:28 PM

So far so good this year...up 24%... In term of $$$$, I still lost... Hopefully I can recoup all my money by late Jan or early Feb 2010..........

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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