S&P 500 - September 9, 2009

charts courtesy of stockcharts.com

The bounce we expected, and got, flourished into a rally.

The force of selling last Monday after a complete wave set had many thinking that finally a correction was upon the market. But we noted two things. One: the possibility of a completed correction around 990 area. Two: inability of bears to take the index lower at critical junctures.

Readers of this blog know that I have been consistently saying that for the market to go lower meaningfully, it needs new bears with capital and conviction. To detect those, we need distribution. Last week, early action looked like heavy distribution. We said bears needed a follow through, and they failed to deliver. It’s as simple as that.

As a result, we have a wave up from the 990 area

We seem to be complete, or very near complete one wave set for the latest rise from the 990 area. And we are near the 1041 area, so, the safe thing for a short term trader who takes positions home might have been to either sell, lighten up, or hedge long positions.

I can’t really say if the index has topped at August peak or not. This may be a part of a wave 3 after a test of 990, or just a strong short term B wave testing 1040.

We’ll have to wait and see. Just bear in mind that a blast through 1041 can put all sorts of pressure on all sorts of market characters to chase the market.

Our pivots, channel and MAs did us really well. The downtrend line I had put on MACD was of big help as well.

For the day, volume was about average and breadth was good



It all looks good at the moment but needs a bit more and I think a test of 1041 area will tell us what the market intends to do. There is always the chance that 1041 area is not even reached. As we said, we have a situation where waves paint different pictures, if so, a retest of the 1018 area becomes the key.

One thing that makes me cautious of being short is the performance of Nas100 these past days

Notice that techies are hitting against the long term trend line (magenta line). If you remember, this is the same line that I heavily shorted only a few days ago. This time, I just shorted a little using QIDs. A first test of a technically important point usually causes a reaction. A retest has more even odds on either side. The first test happened on a rush on early hours of future markets. This one happened gradually, during the day, and has the attention of the world. I opted to take it easy. I still play my play, but more guarded this time.

Remember, it takes a few shaky shorts to jump start a rally. It will take more than a few money managers to sustain a rally. Breaking through key pivotal points puts the pressure on money managers to either do something or fall behind in their world of relative performance against indexes and against their peers

Nas100 breadth was good, and it seems like there is a MACD cross, but too soon to get overly excited. If techies blast away, S&P will very likely follow – a precarious situation for bears.

To refresh our memories, this is a weekly chart of NDX with the downtrend line

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

Support 1018. Resistance 1041

Have a Nice Day!