S&P 500 - September 25, 2009

The low end of my support band (1040-1050) was hit and held on Friday.

This is a 15-minute chart of the index with the area that I circled on Thursday

In the last post, I said

Notice MACD has dropped to the level of September low. If index is indeed going to maintain its mid-term uptrend, this should be the low in short term momentum, followed by some divergent low or choppy sideways action.

Momentum has bounced up, and price is diverging. But all of that means nothing if price cannot bounce from here. It will not look good for the bulls if index breaks through 1041 (pivot +/- a few points) area without a bounce. If index breaks through 1018 area, I will start to seriously think that rally since July might be over.

It is crucial for the index to hold this level and rally. A move that persists below the 1041 area is not very good because it

1. Will cause an overlap between minor wave 4 and minor wave 1

And

2. May indicate a change in price characteristics of the market since short term diverging momentum and a dip is not attracting automatic buyers

Let’s look more closely at the index (or the ETF of the index)

We see a steady dump into the close of Wednesday. Then, spike dumps into the close of Thursday and Friday.

If SPY rises above 105.50 on Monday, or perhaps Tuesday, my scenario that we have only seen a minor wave 3 peak stays alive and well.

If, on the other hand, it rushes down in an impulsive manner, the scenario that counts September 23 as a Wave C peak gathers probability.

The outlier is that index goes down, creates an overlap with minor wave 1, and then rebounds to set up an ending diagonal.

So, that’s what I am watching on Monday, 105.5 on SPY. I am not saying that a rise above that will mean an end to the drop from Sep 23 peak. Just that it would maintain my preffered scenario of being in minor wave 4.

If we get a rise above 105.50, then I will watch for short term higher lows and higher highs to perhaps get a change in short term trend.

This is a 60-min chart with the support zone I am looking at in the context of a larger channel and the uptrend since March.

For the day, volume came below average. Lack of volume on the decline should be a bit disconcerting to the bulls. While a high volume sell off may give a low for a bounce, a low volume selling may drag on for a while longer.

Breadth was negative

McClellan Oscillator is close to its uptrend line.

If index wants to maintain it mid-term positive posture, it should attempt a bounce from around here. Starting with an improvement in daily breadth figures

In the larger scheme of things, not much has changed technically – Not Yet!

Overbought and, perhaps, correcting. That is what I read from the charts. Yes, there is a good possibility that the index has topped. If I were bearishly inclined, I could have had a pilot short with a new high as a stop.

If I were undecided, I could monitor the levels I have discussed and watch this chart as a possible road map

Notice how volume leading to Septembder peak increased as we advanced. Also notice how volume has contracted as we have declined.

Index is at 21 EMA, which corresponds to an area that I think is a must hold for the bulls as discussed above.

NYSE TRIN has had a spike, indicating that a bounce may be very near.


If with TRIN reading like this (1.70 something), bulls cannot get a bounce in an uptrend, then they may be weaker that we think, and that may embolden the bears. Keep that in mind!

Nas100 sold on average volume



I think we are gradually seeing a Nas100 that more and more reacts to S&P as opposed to leading it. I might be wrong, and it is too soon to jump to conclusions, but it’s something worth monitoring. Same breadth conditions as S&P exists for the techies as well.

One thing that Nas100 has and S&P does not is that it has cleared a very important downtrend line and has support from a long term shelf around 1650-1660

S&P does not have such luxury


One reason that I think S&P will get on with at least one more swing up is that garbage still seems to have value in the market place.


But, as we know, what I think is of no importance at all. What market does matters and that’s that.

Let’s Wrap Up:

Index holds key support area of 1041

This drop has not been accompanied with garbage bond ETF, HYG – Not yet, anyway

Resistance is 1050, 1061. Support is 1041, and then 1018

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


Enjoy the Rest of Your Weekend!