S&P 500 - October 8, 2010

Good week!

S&P +1.65%

Friday had the much ado of some econo-number. True to its ballyhooed importance, it created some nasty jerks.

Do these numbers really matter to the short term affairs of the market? If market’s in a rally mood, a bad number is like, Heeee-Haaaa because Fed may print money. A good number, well economy’s OK, so, why not rally? If market’s in a decline mood, a bad number is yet another excuse to dump. A good number would mean that Fed may not print, so, why not dump?

To each, his own, I guess


We have been correctly pointing out the corrective nature of many smaller waves recently, and Friday’s jerky action seems to have finished something like an ABC sequence. If so, the low of 1145 or so on ES should be a good objective price reference for at least a short term trade or swing – like for the duration a wave or something – I might handle a position like that with tight stops and based on higher highs and lows. If I have built-in profit, then I may start dividing into multiple levels of exits

This is a weekly chart of S&P


I never say never, but I have stopped expecting the index to jump in the upper half of the blue channel. It might do it and that would be a nice surprise, but it seems like the lower half has established itself as the trend channel, which is OK, tighter, but OK.

Weekly RSI registered a higher value and MAs are nicely aligned. Weekly price closed above the orange 2007-2010 downtrend line. It would be nice to keep closing above this line.

This is a daily chart


We, so far, have a successful breakout. 1150 area is the breakout area and I wouldn’t want the index to move and stay below that. 1120-1140 still looks like a buffer zone that should ideally absorb a more serious correction. That said, a drop to 1120 may indicate a potential change in mid-term tend. For now, the 1150 area and the orange downtrend line are good markers of support for me and I may become uneasy if they can’t hold.

Daily volume shrank. Daily breadth was good


Broader measures of breadth look good


McClellan turned up from around neutral


McClellan has spent quite a few days around neutral going nowhere. That is in harmony with the small flat price ranges we have been having. Yet, we are seeing McClellan lagging the price advance and setting a negative divergence. Price can, of course, ignore all sorts of divergences, and, as we just saw, broader measures of breadth are positive and looking good. I personally take divergences from short term measures as warnings telling me that I might have to take a look at what I have, and assess my exposure and exit strategies.

One nagging issue has been the behavior of NDX. A few days ago, it had a rough day while S&P held flat. Yesterday, NDX did well for the day. Looking closer at the index, I see this


The orange line is a downtrend line that passes through Oct 2007 and April 2010 peaks. NDX is yet to get above the downtrend line. I also saw something that I seldom see. Notice that McClellan volume oscillator has turned above zero line but McClellan price oscillator is still negative. I do not like that. If NDX can clear the flat top and the downtrend line and expand the McClellan, then fine and I am making a big fuss out of nothing. Otherwise, this may have been a subtle and early marker that a correction of some sorts is looming.

This is 60-min chart


I have put my other bullish alternate on this chart as well. As, I have mentioned ad nauseum, there can be other bullish counts as well as bearish counts. It never is my intention to be a perma-waver – I lay out some scenarios and then see how it all pans out

There are divergences appearing. I would like the index to expand short term momentum

As I mentioned yesterday, I have raised my top level to 1154. A move below 1154 may be an indication that a change is short term might be happening.

My levels are

1154

1145

1134

1120

OEW pivot support at 1146 and 1136. Pivot resistance at 1168 and 1176.

Long term trend is up. Mid-term trend is up. Short term trend is up (a move below 1154 may change that).

Have a Nice Weekend!