S&P 500 - May 27, 2009

charts courtesy of stockcharts.com

No more shorts to squeeze?

I am working on a short term market script:

There is a slow Friday before a long weekend with pathetically boring action and a dump into the close. Index is at a critical level watched and discussed by every creature in the universe – yes, Martians, too.

There are some emboldened shorts who decide to join the dumping party in the future market before the open after the holidays. Then comes a Jane & Joe Survey saying they are really pumped and are about to spend a whole lot of what they don’t have on crap they cannot afford. Shaky shorts are whipped into submission in 45 minutes or so.

Fade out – Fade in – Next day:

Shorts are in short supply and index drops with abandon.

Disclaimer: The above is just fiction germinated & fermented in my mind and has no basis in reality.

Let’s get real:

This is 5-minute chart of SPY



I think the annotations are descriptive enough.

It was yet another reversal day. These reversal days happen with such frequency that I wonder if they have any significance at all.

There was some tight action around 912 pivot, and after that gave way, 900 was taken on the way down with relative ease.

For the day, volume was below average and less than yesterday. Breadth was negative


It really was not a disaster day. In fact, nothing has really changed, same range, same levels, same sell signals on price, breadth, and momentum, and same bullish and bearish counts still alive and well.

This is a 60-minute chart of the index.

I would like to remind you that there are bullish alternates as well, two of which I discussed in the post of May 22. I will have to keep maintaining bullish and bearish counts until the current range resolves decisively up or down.

Meanwhile, because of the sell signals that I have been talking about, I, personally, have a bit of bearish bias, not enough to turn me into an all-out short, just enough to trade with a bias towards the short side.

It seems like a new channel is developing on the 60-minute chart above. It’s too soon to say, but worth keeping an eye on

I showed the following chart yesterday and wondered how index would behave at the underside of failed gap of May 20.

Index could not surpass that gap and fell. This is a bearish development, but it takes some serious bears with real capital to take advantage of situations like this.

Nas100 also had a low reversal day on below average volume

Recently, it has been outperforming S&P again. A continued outperformance would be positive for the market

To Wrap Up:

S&P failed at 912 pivot and fell below 900 support

Index is close to the bottom of a range (875-925), and has kept both bullish and bearish scenarios alive.

Bulls need to recapture 900, and then the 912 area

Short term trend is up (neutral, really, but tilting up). Mid-term trend is up. Long term trend is down

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

There are still multiple sell signals on price, momentum, and breadth, to reverse that, buyers have to bid the tape very hard. They seem to be content with squeezing shorts for quick trades and nothing more.

Bears do not matter at this point, watch for signs of distribution to see if bulls have turned or not.

I leave you with this chart

There is an overhang of sell signals. So far the 21 EMA has held it well, and allowed it to relieve overbought pressures without giving up much. It has all the makings of a base building pattern around here, and as long as it does not make a sustained move below 875-885, the pressure will mount for a move up, which is the direction of the previous trend.

Food For Thought:

Let’s look at rates

As you can see from the middle clip, S&P got mired in thick mud after 10-yr yield broke above February high.

Can long term yields and equities rise in happy unison? I don’t know. I leave the answer to that question to econo-heads – bear or bull. What I know is Something’s gotta give, and I do not feel like going long the general market right now no matter what shade of green is shooting out of which mouth or what crack.