Market Update 2011-08-04
Contributed by Charles Guest, SinoCentury Guest Commentator

This is the first update in quite a while, but today warrants a word of caution.  

The S&P 500 index appears to have completed a head and shoulders pattern, which would be a very ominous sign for the markets. Specifically, the neckline support around 1250 was broken today. Once that support was broken the markets went into free fall, since traders respond to these critical levels. Also, computerized trades were triggered. We now rest at 1200, which is a major support level from which we fell off a cliff in 2008, eventually dropping to under 700. Traders remember that pain and will not be inclined to sit idly by if we cannot hold here.

There is a chance bulls will try to push us back towards the 1250 level, as we have only been below it for one day, in which case the bulls could conceivably regain the higher ground to push us back to recent highs. I am skeptical given the macroeconomic problems. Those problems include a near bank run in European banks, faltering economic indicators in the U.S., sovereign debt problems around the world, and diminished will and ability for more bailouts. If the bears take control, there are numerous support levels on the way down. If they don't hold, we could go all the way back to major support levels around 700 last seen in 2009.

Bottom line, I will be taking profits from the 2009-2011 bull market, reducing exposure to stocks, and raising cash levels for future buying opportunities.