S&P 500 - October 7 - 2009

Today felt like a day of consolidation.

It seems like market has set up a 5-wave advance from the Friday low.

Yesterday I mentioned that I had opened small shorts on SPX and NDX. A long term reader, Ilango, commented that I was being bold. I replied that I was not sure whether the correct word to describe my action would be bold or stupid, and that I would have the answer today. As is typical of the market, it kept the expectant (in this case, me) in limbo. It did nothing to either enrich me or stop me. It just went horizontal :-)

Looking at the chart above near the end of the day, I decided to close the positions. Index had drifted out of my channel. The drop from the peak of Sep 23 looked like an a-b-c. We had just had a good short term momentum peak. If that thing at the end is truly a consolidation pattern, chances are for it to resolve to the upside.

The chop zone (battle zone) that I had identified in between two red lines is currently holding the key to the short term action. There may be a small Inv. H&S in the works with neckline around 1065. If the recent action is indeed a consolidation before another move higher, the Inv. H&S may indeed prove to be in play, and index may carry well north of 1070 as the result. That would make the drop from Sep peak more probable as only a correction and increase the odds of another high.

On the other hand, if index fails to get above the 1070 area, and the short term picture gets sufficiently overbought with divergences, the daily sell signals may knock the index back at least to the bottom half of the chop zone.

For the day, volume was poor. Breadth was mixed, somewhat neutral.

There isn’t much else to say.

Resistance is 1061 and 1090. Support is 1941 and 1018.

Short term trend seems like having turned up (a move above 1070 will confirm that). Mis=term trend is up. Long term trend is down.

Have a Nice Day!