S&P 500 - November 27, 2009

Was that all Dubai could do? A two-night sell off to support? Was that all the US (and Canadian) money manager cared about Sheikh Maktoum’s problems?

It may be too soon to say. But based on what we have so far, S&P did a successful retest of 1080-1085 and stayed within 1090 pivot range.

Some say that people were on vacation and selling will come on Monday. Where do these people take vacations? On Mars? Like none of the big money managers could be bothered to call some junior trader and tell him/her to sell?

It is a dangerous market that reacts as such to a 40 billion dollar possible default by some Sheikh in Dubai. The way I see it at this point, everybody thinks that what drives this market is fresh prints of Bernanke levered up 20, 30 times or so, and everybody’s nervous that something may happen that would drown Bernanke and his prints altogether and leave them holding a levered bag of anything but cash. Memory of 2008 must still be very fresh. They may be wrong but that seems to be the overall perception out there based on what I read, hear, and observe.

There is always the possibility that where there is one cockroach seen, many more roam unseen. And maybe that’s another reason behind such knee-jerk reactions. Is Dubai the tip of the iceberg yet to be hit full force by the market?

All I know is that, so far, there has not been unmassaged, non-governmental, blue-collar econo-data to tell us that we will have a self-sustained economy freely and privately operated without intervention. The biggest contributor to whatever improved econo-number published has been the government – the buyer and lender of last resort – buying clunkers, and lending to a select few.

Econo-data may come, but until then, the rally is a rally of hope (and constantly minted money), and a piece of news like the one of Dubai can make the hopeful nervous.


This is a weekly chart of S&P 500


All that drama and late night angst did not change the weekly picture much. Price is still in a congestion zone between the 2007 downtrend line, the two uptrend lines from the March low and August lows, and the half range marker

It’s been rejected by the downtrend line twice so far. Notice the support afforded by 89 EMA, and rising shorter EMAs. As long as index does not break, it has a chance to consolidate, gather energy and attack the 2007 downtrend line. Hit enough times, any level, resistance, or support, becomes weaker, and weaker. A break above may target 1130+ before any technical resistance is encountered. A breakdown, may target 1050 and 950.

Momentum has been muted and on the wane. That can be seen in the RSI, the MACDH, and the flat MACD. That happens in consolidations. It happens during a topping process as well. For longer term decision making, I need to see a resolution to the ongoing congestion

Let’s zoom in


Notice the purple arrows that I have on the chart to mark all one-day ugly candles that we have had since August. The jury’s still out on the most recent one on Friday. But none of the prior ones did any lasting damage. In fact, they all had denoted some short term bottom.

Also, notice that, since August, we have had 4 MACD down crosses. The earlier 3 did nothing to cheer the bears.

The Summation Index sell signal early October. Since then, the Summation Index has trended down, and price has trended up.

Price is just hanging on to 21 EMA. The RSI and MACD downtrends are still in place. 55 EMA has provided bounces in recent days. 55 EMA comes around our 1061 pivot. In fact, in the early future market hours, S&P futures trades as low as 1067


Judging the general market action based on future market activity can be tricky. But since we had the Dubai news, and since I do not believe for a minute that every player in the world was off because of some Turkey Day USA, I am going to assume that 1061 pivot has been successfully tested in the pre-market, and 1080-1085 area has been successfully tested in the open market. If the bears are really serious about their aspirations, they should break the index below 1061 pivot and keep it there.

For the day, volume was not bad considering that it was a short trading day. Breadth was horrendous, but I won’t jump the gun to conclusions yet because market started from a gap down and worked its way up. This coming week will tell us the rest of the story.


Let’s take a look at TRIN


Spikes like that are supply shocks pure and simple. How the market copes and recovers will tell the short term story. If the uptrend is healthy, TRIN reading like that should get us a bounce Monday or Tuesday. If not, selling might accelerate.

Notice the A/D line. It is yet to make a new high. If uptrend is good, A/D should get us a new high soon, otherwise it may be viewed as a narrow uptrend not enjoyed across the broader market. That typically occurs when money rotates, especially into large caps that can move a weighted index, without new net money rushing into the market.

Let’s take a look at the momentum cycle before zooming into a 60-min chart


Notice that CCurve has made a peak higher than the previous peak. It may be starting another momentum cycle on the way up. If so, the next CCurve low should ideally come higher than its prior low.

Shorter term, S&P has ping-ponged between 1085 and 1110


It looks like a fine balance. The resolution of this short term boxed range may get volume flowing into the market. As long as 60-min momentum has not recovered, I may regard the top of the range as a low risk short trade. It is very tricky because everybody knows this range and running the stops may not be that difficult, so if I try a trade, I may need to have a wider mental stop and the discipline to execute it.

Let’s Wrap Up:

I have heard and read the term Black Swan used for the Dubai thing. Black Swan’s are supposed to be unexpected, rare events. Dubai’s credit problems did not surface overnight, and a 40-60 billion default can hardly be a big deal. Market’s behavior this week will tell us how big a deal a real estate bust in the Middle East truly is.

Dubai may be the straw that broke the camel’s back, or it may not. What it showed us, however, was the degree of nervousness in the global markets. Being that sensitive to news can be exploited by well positioned, well capitalized players capable of telling stories.

Not much has changed. S&P is still sandwiched between the 2007 downtrend line and a short term uptrend from August.

Bears have been playing as extras since March. If they want some leading role, they should start by taking the index below 1061 pivot and keeping it there.

Bulls need to breakout above the 2007 downtrend line on good volume.

With the short USD and long everything else trade being as crowded as it is, this is a very, very dangerous market. Unhedged longs may be blindsided at any time with the underlying bid disappearing from the tape.

There is no short term trend, just a choppy lateral move. Mid-term trend is up. Long term trend is down.

Support is 1061 (a tough pivot for the bears so far) and 1041. Resistance is 1090 and 1107 (a tough pivot for the bulls so far)

Have a Nice Day!