What I Told The Speculator About The Stock Market Now [Credit Suisse AG – VelocityShares Daily 2x VIX Short Term ETN]

wall-street-etfMoe Zulfiqar: Just a few days ago, I received another call from my good old friend Mr. Speculator. He was worried. He has been long on the stock market since the beginning of the year, but sadly, stocks have come down a bit. He asked, “Do you think there’s more downside on the stock market? Or is this the correction everyone was talking about?” Mr. Speculator bought exchange-traded funds (ETFs) that provide him leverage; he added, “My losses are adding up. Should I sell or wait?”

Mr. Speculator isn’t the only one who is asking this question since the key stock indices started to come down. I hear this question being asked all around. January is supposedly a good month for stocks, but so far, this is simply not the case. The S&P 500 is down roughly three percent. Investors are asking whether or not the returns on stocks are going to be horrible this year.

Looking at the charts and assessing the sentiment, it appears reality is slowly coming back to the stock market. Take a look at the following chart of the S&P 500.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

Looking from a technical analysis point of view and taking the S&P 500 as an indicator of the entire stock market, there are a few developments that investors need to know.

First of all, since the beginning of the year, the volume on the S&P 500 has been increasing. This is interesting to note, because it suggests investors are selling into weakness. In addition to this, we see that the S&P 500 has broken below the 1,800 level and has moved below its 50-day moving average (MA). This level can act as resistance to the stock market on the way up. Finally, indicators like the MA convergence/divergence (MACD) are suggesting that momentum on the stock market looks to be in favor of the bears.

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