Jason Kelly

Susan wrote:

I read in several places that we face a "moment of truth" in the market right now. I thought that was back at the March lows when the financial system didn't melt away and smart investors (like your readers!) bought. Why are we facing a moment of truth now?

Most talk now about a moment of truth is coming from technicians, that is, investors who analyze charts to determine the odds of future direction.

They will tell you that the S&P 500 is currently caught between two key levels: support at 1,400 and resistance at 1,425. A week ago, they referred to 1,400 as resistance, but the market pushed through that last Thursday, so the former resistance became support.

Another way of analyzing the market examines its percentage position above or below its respective low and high. Right now, the Wilshire 5000 (the broadest measure of U.S. stocks) is parked just below the level representing a 50% retracement of its decline from the October high. It fell 19% from its October high to its March low, and since that March low it has gained 11%. If it gains another 11%, it'll be right back at its October high.

So, the idea with this being a moment of truth is that the market's direction in the next few days will determine its fate for the next month or so.

However, I wouldn't put too much stock in this idea, so to speak. I don't think I've ever spent a day researching stocks when I didn't run into somebody saying "we'll know more tomorrow" or "this is the decision point" or here we are at the "moment of truth." Isn't it always a moment of truth of some sort? The evidence is in, we all have an opinion, then we step back to see what really happens.

Generally speaking, there are five moments of truth in every trading week. They come on Monday, Tuesday, Wednesday, Thursday, and Friday.

Posted by Jason Kelly at 7:40 AM Japan time
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