S&P 500 - May 18, 2009

some charts courtesy of stockcharts.com

VOW! – Minus the volume, of course!

Index rose sharply and incessantly on below average volume.

It is as if the world was waiting behind the nightly curtains of the future markets to gang on hapless shorts as soon as index would hit the 875 area, which we discussed as a crucial level for bears to break.

This is a 60-minute chart of June contracts


Around midnight, 875 area was hit (cash index is +3 or so), and then the future market bulls went to work

The rise of today looks like a shuttle launch on the chart above, let’s zoom in for a better view


Let’s not get caught in the minutiae of wave counts, and instead focus on the frantic rise. In one session, 62% of the entire 7-day drop (since May 7) is retraced without any meaningful pause.

Perma bears may say that it is the very characteristic of a bear market rally.

Perma bulls may say that it is the bargain hunting after a dip.

I am not sure which group is right. Well, I have some ideas, but am not 100% sure. What I am sure about is that a few more session like this and bears may end up with a whipsaw to remember.

On the other hand, if this move cannot better the high of May 7 in a meaningful way, and if it fails at becoming an impulse higher, the sell signal after that failure will be, TO ME, a short I will not be able to refuse.

For the day, volume expanded a bit but was below average. Breadth was excellent!


It’s a bit hard to take the daily breadth seriously when volume is poor. But it is what it is, and the advance was broad-based for the day


This is a 60-minute chart of the index


On Friday, we had a short term oversold conditions with positive divergences. In one day, we have recovered and are now entering into short term overbought territory.

Notice that the 875 level acted like a rock and made a short term double bottom – just an observation

The bounce has kept the bullish count alive. All I can say is that I will shut every face on TV off (I don’t watch much TV anyway) and read as few blogs as possible (less and less, I find quality analysis in the blogosphere) and instead concentrate on the price action.

If we are done and this is a corrective wave up, then it will run out of steam and turn around. If it impulses higher in clean waves, then, may God have mercy on whoever stays short the index.

This is 15-minute chart of the index


The circled areas are from Friday’s chart. They proved to be decent markers for today’s action. I had better things to do (We have a Tulip Festival in town, and weather was very nice), so I wasn’t around to trade them, but I think they could easily be taken today.

The 15-minute chart is setting some negative divergences, and I think we will get a pullback soon. As always, I remind you that market does not care what I think. But even if market obliges and pulls back, I still think that there still is at least another leg up.

Nas100 had a bounce as well


But the volume contracted and it underperformed S&P

To wrap up:

Index bounced from 875 and kept both bullish and bearish alternate wave counts alive

Bears do not seem to have it in them to inflict mortal blows, it is up to the bulls to stop buying and/or start selling

Watch the Stochastics to gauge the strength of the short term bounce

Short term trend is up. Mid-term trend is up. Long term trend is down

A sustained price movement above 912-915 will scare me enough to go to the sidelines. Depending on how it unfolds, it may even lure me into trading the long side. And I mean trading - absolutely no new long positions for me at this point.

Resistance is 912 (pivot), 920, and 935 (Jan 2009 top). Support is 900, 880-885 neckline, 875 (a short term double bottom bounce) and the frequently contested 850

I leave you with this chart


Let’s keep an eye all indicators on this chart and assess the strength of the bounce!

Once again, I don't think the bears matter at this point. It is the bulls and the fat cats, and I shall look for signs of distribution.

Have a nice evening!