S&P 500 - December 4, 2009

On Thursday, we complained about the dull nature of the market action, and market responded like a mad man with an axe.

What did S&P do after all the angst and trepidations? Not much. 1.7% gain – flat for the week, and still in the same range. But just saying that the index did nothing is not fair to the market. It did chop around and retired some trader capital. That’s what markets are supposed to do, frustrate many with the goal of rewarding few.

This is the weekly chart that we have been following for quite some time


The only technical changes that I see from last week are a higher close, and a higher volume. That is positive, which is quite something given that we had the Dubai thing, and the bouts of selling that started Thursday afternoon.

Index is still sandwiched between the 2007 downtrend line, and a multitude of support from MAs, the half range marker, and uptrend line from August.

This is a Daily chart


A couple of routine bounces off of 21 EMA, and a flat price action since Nov 9. If we take a look back at 5 prior short term peaks, they were all flat, none this long, though. Volume expanded sharply, which may be indicating that players are becoming active again. Other than that, the daily picture is fairly neutral

Daily breadth was positive


One interesting thing that I notice is that number of new highs has been expanding these past few days. That, in itself, is positive. November 26 was a bad breadth day down on low volume. December 3 was distribution day. December 4 was a crazy day that came out, in numbers, as an accumulation day.

Daily momentum as read on RSI (or Stochastics) is neutral. Price has been flat, thereby neutral

Broader daily breadth as measured by McClellan Oscillator, and the Summation Index are neutral


Daily breadth as measured by percentage of stocks above their 50 MA has also been neutral


A/D line looks, well, neutral, but nicely holding up despite all the crazy gyrations.

So, I am not sure why I should buy perma stories bull or bear. Both sides have been incapable of driving the market their way for 3+ weeks now.

This is a 60-min chart


A few days ago, I referred to the range that I have been marking with purple arrows and said that to a bear, it was a top, to a bull, it was a base, and to a pig, it was a slaughter house.

Let’s remove some of the clutter on the chart and look closer


I think that the low of November 3 was a low of some significance because it happened at a time when some sectors (like finance) and indexes (like RUT) had a reversal of their mid-term trend to the downside. I have been counting it as minor wave B. After that, I think I can count 5 waves up. So we either have a minor wave C complete or have a minute wave a/1 of minor wave C.
After that, I think I can count an a-b-c down for a minute wave b/2.

Long time readers may remember that I collect 24-hour future market data and check price formation against cash market for confirmation or discrepancies. This is a 60-min chart of S&P December contracts


So, after the minute wave b/2 (green), I think I can count 5 small waves up. Notice that I have labeled the small waves in black which is not a color that I use for any wave degrees. On one hand, they may be micro degree waves completing minute wave C, and minor wave C and primary wave B like this


On the other hand, we may have the beginning of a much longer minute wave C like this


If someone puts a gun to my head and forces me to make a choice, I will probably say that market is going higher. That aside, I’d rather wait for the resolution of the 1080-1110 range.

Of course, my count can be totally wrong, and that’s another reason for me to take it easy and let the market tell me what it wants to do.

The Way I See it:

1100 area of S&P came under serious assault by sellers but it held firm.

Late Thursday afternoon, and Friday after open, there was a good number of shares that traded through violent bursts of selling. As we have been saying, players seem nervous. It can be due to any reason. Maybe it’s Dubai again. Or another overextended dreamland gone bust. Or something else. Reasons are usually known to many of us well after the fact, and as such, dwelling on them may not be a very useful occupation.

Technically, we have an index that has faced selling at every recent attempt at a new high, creating something that looks like a mini broadening top. A failed attempt for the upside out of a range is technically bearish. On the other hand, the low of Thursday stopped the selling on Friday. Yes, I know the bears say it was this or that entity buying the close and painting the tape. The fact of the matter is that if institutions want to sell en masse, this or that entity may either be buried, or become the only buyers in a market of sellers. Market manipulation works as long as there is another party to manipulate. If every other party sells, manipulators join the rank of sellers before you and me. Do a study of the selling of November 2008 to March 2009, or go through my posts of that period, and notice how orderly the selling was, which was what I was constantly pointing out in those days. That was a market of sellers.

This is a market still trying to establish the next course of action. Pay attention to price. Pay attention to breadth (it can’t stay neutral forever), Keep an eye on RUT (beautiful bounce off trend line), keep an eye on techies, watch USD, and ignore the permas.

You will hear all sorts of stories about the dollar, gold and the market. It happens when things get choppy. Choppiness may or may not bring a change in the order of things. Macro intermarket relationships may take some time to change the dominant course of the aggregate market action. Ignore the noise, and watch the price

If I wanted to gamble on the short side, I could do so with puts a few months out targeting 850-950 somewhere. If I wanted to gamble on the long side, I could do with calls targeting 1130-1150 somewhere.


Jumping up and down a narrow range happens out of nervousness and indecision. When big players finally make their minds, and feel OK with their positions, ranges break and trends follow, and it all becomes orderly

Staying with technicals, the lows of Friday and Thursday are important, and must hold or more bursts of selling may follow. Bulls need to breakout to the upside and stay there. Bears have a lot to prove, for starters, they need to take the Friday low of 1096. They then need to take 1080. After that, they must break below 1060 and stay below that. If they can make a couple of closes below 1060, index may finally succumb to widespread exit of the longs. Anything else, and this remains a market of bulls, by the bulls, for the bulls. It is their ball to drop.

The more the sideways consolidation drags, the more capital it retires, the more of its excesses it unwinds. That way, chances become higher for the continuation of the prevailing trend, which is up.

Support is 1090, 1061 (a tough pivot for the bears so far) and 1041. Resistance is 1107 (a tough pivot for the bulls so far), and 1133

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

Enjoy the Rest of Your Weekend!