SP500 up over 4% for only the seventh time in history, but……

Posted by Stephen Todd - The Todd Market Forecast

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Todd Market Forecast for Monday May 10, 2010

Available Mon- Friday after 6:00 P.M. Eastern, 3:00 Pacific.

DOW                                 + 405 on 2750 net advances 

NASDAQ COMP              + 109 on 2050 net advances

SHORT TERM TREND                           Bearish


Today, the S&P 500 futures opened up over 4% for only the seventh time in history. The other times were 10/20/87, 10/21/87, 1027/87, 9/19/08, 10/13/08 and 10/28/08. In all cases, the gains were given back, most within a few days. One took almost two months.
Let’s take the three most recent. The events of Sept. 19 and October 13 were triggered by the announcement of big rescue packages for financial institutions. There was no special news for the big open on October 28.
Today, the news was a big rescue package to get European banks off the hook. Sound familiar?
When four day RSI becomes oversold and then we get a sharp rebound we look at the possibility of moving back to a short term buy signal if we have been bearish. But there are two problems. First, we still have a pattern of declining tops on the daily charts and volume was pretty anemic. Meaningful moves tend to be on impressive volume. Incidentally, the moves from September and October of 2008 weren’t on great volume either.
We can see that the declining tops are still in place in the chart below so we’ll see how things go over the next couple of days before considering a change in short term posture.

The dollar was down, but well off the lows. It seems to have aided silver, copper and crude oil to a gain. Gold was down because of the sharp gains of the last couple of days. Bonds managed a sharp down session. 

Our intermediate term systems are on a buy signal.       

We sold the E-mini bought on Friday at 1121.75 for 1156.25 which was a gain of 34.50. We sold the SSO bought Friday for 38.74 at 41.09 which was a gain of 2.35.
Since we were up over 100 Dow points today with 15 minutes to go, we sold the E-mini bought this morning at 1154.00 for 1156.50 and a gain of 2.50. We sold the SSO bought this a.m at 40.87 for 41.09 and a gain of .22.
Stay in cash on Tuesday.   
System 7 traders are in cash. Stay there for now.   

Stephen Todd – A Short Biography www.toddmarketforecast.com

Since 1984, the editor and publisher of the Todd Market Forecast, a monthly newsletter with emphasis on the stock market, but also with sections about gold, oil, currencies and bonds.

Steve spent a number of years as an engineer in a steel mill before becoming a stock broker with a number of Firms, including E.F. Hutton, Bache and Paine Webber.

He has published articles on the economy and the stock market in the following publications: Barron’s, Stock Market Magazine, Futures Magazine, The National Educator and others.

His stock market commentary is heard on CNBC, Bloomberg, Associated Press Radio, Business Radio Network, CKNW in Vancouver,  British Columbia, KFWB, Los Angeles and ROBTV in Toronto, Ontario.