Friday, July 24, 2009

Near Term Roadmap/Plan for S&P 500

Here is what I am planning in regard to the S&P 500, with the caveat as always my technical analysis is of the most simplistic nature, but many times simple works.

It appears we are back to those suspicious days of April and May where the futures would be down overnight only to stage a miracle recovery ...going green either as we wake up or as an urgent buyer just must get into the market in the 7 AM to 9 AM hour. Since moving the mkt via futures costs relatively less to the US taxpayer I appreciate the thoughtfulness of the Plunge Protection team. But certainly if we cannot go down after a series of earnings disappointments by some of the biggest names in corporate America than I suppose we can toss earnings reports in with everything else that is 'moot' in this new fangled market. Let me clarify... bad earnings reports are moot. Good ones still count.

Perhaps one day we will sell off again. Or perhaps the laws of supply and demand of fiat money require that X amount of stock chased by ever increasing amount of US pesos will bring us joys in the market last enjoyed in 1999.

Let's break the S&P up into segments which I always like to do. We closed at S&P 976... the first segment will be from (a) where we broke out from and above. I am classifying that around S&P 958. Resistance becomes support, so aggressive bulls want to buy here or on a pullback (assuming we are allowed to have one) to that level as they anticipate a bounce and then off to the races. I marked that with the top orange line below.

The next segment (b) is if that "breakout" level fails and we fall below - then we are in a narrow range between the 2 orange lines - the bottom of which is the 200 day moving average (lower orange line), currently S&P 937. So we'll be in a 20 point S&P range. That area is simply "white noise" area and what we do inside is meaningless to me. Since bad earnngs dont matter I am unclear what would get us there but I am still thinking like an old school market.

The last segment (c) is if we break the lower orange line (200 day moving average - exponential of course) and then this whole episode of green shoots was just a dream, like "Dallas". I anticipate if that happens we're going to visit that lime green arrow at S&P 906. But maybe after we rally for 18 more days straight first.

A very confidant bear who loves his gap fill theory shorts immediately... or at worst once we break segment (a). He will make a lot of money if correct, but open himself up to lots of risk if wrong. A very confidant bull buys on any pullback to segment (a) and laughs off any further downside. He will make a lot of money is correct, but open himself up to a lot of risk if wrong. I on the other hand will dance between elephants stealing peanuts while avoiding being stomped on. Or if peanuts are not available - we'll settle for a soccer ball.

Since we are now at 'parabolic' levels and euphoria reigns supreme risk increases so we'll see what the next few days bring. Since the market won't fall in after hours I suppose buying exhaustion during the actual day will be the only method of correction.

I'll continue to develop a watch list of individual names to rebuild or begin positions in - long or short - as we wait.

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