Tuesday, November 18, 2008

S&P 500 Looks Ready to Bow Out

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I come from the school that the more times you test a level the more likely you are to break it (either up or down). The easier path as we constantly thrash against S&P 840s remains down - we're wearing down the defense. Unlike last Thursday when you had a very anticipated break of support, a "swooping" out of stop losses across the Street and then a huge intraday reversal I think this time around will be different if indeed we break S&P 835 again (same level in the sand we cited last week)

In my infamous "day of technical difficulties" trades I was mentioning how I'd lighten shorts and go long into that stop loss trigger chain reaction sell off. This time around I will/would not. I'm actually adding short exposure once you get below S&P 830 as 800, and then 770s seems very clear this time around. I believe we have a great chance to break down once we fall through - we have yet to CLOSE below S&P 840 - that will be the next negative trigger. Again, if this plays out, S&P 800 will be a psychological stop - we'll see if that is cut through like a knife in hot butter or if there is at least some defense. If not, I think we could make a quick 10% downside move to our 2002 lows... S&P 770s.

I'm trying to be contrary against myself - asking if my constant negative reference is in itself contrarian. But I simply see a lack of buying. Buying individual stocks is now Russian Roulette as we can lose 30% in hours in any issue at any moment. Etc.

Again, in summary form - unlike the last time we were here (last Thursday) I believe this time we won't bounce and in fact will knife down once we clear below S&P 835. A close below 840 will set off negative vibes and cause more to run for the hills. If this plays out as anticipated the next trading buy to me will be a panic crescendo as we reach 2002 lows.

If you are a bull, S&P 840 (on a closing basis) is the level you must support. All eyes on it (intraday low Oct 10th).


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