Tuesday, July 7, 2009

S&P 880 is Here, With Bells On

S&P 880 is here - that's the line in the sand we've been discussing. I don't want to make too much of one day, and I'd expect some defense of this area even if there is a sustained period downward following but this was the spot we refused to break below in May.

And while one day does not make for a "break" (see the action two weeks ago) we again broke the 200 day simple moving average. We quickly reversed out of that condition about 12 sessions ago, but you might be noticing these post 3:30 PM "mark ups" are farther in between and weaker in sustainability.

Where are all the "golden cross" (50 day moving average cross over the 200 day) fans of late? [remember that happened with a downward sloping 200 day moving average, unlike 2003's upward sloping - and it only happened in the simple moving averages. 2 strikes for "golden cross" fans]

And our leadership market, NASDAQ (read: technology) has under performed again... and broke key support today on the close.

As reader Guy says, in the near term it would be fitting for the market to break key support levels, draw in the bears (who have been bloodied since March) before reversing up and breaking bears hearts (albeit temporarily), but as I stated last week and in this weekend's summary the place to short with longer term plans in mind will be (a) a break below these key levels (875-885) or (b) on the next oversold bounce. I do believe the trend has now changed, but as I wrote in the weekly summary I would be expecting a mid week bounce after a test of S&P 880. Halfway correct so far.


Now we need to study our Fibonnaci and decipher how much of the move from 666 to 950 (I'm rounding to keep it simple) on the S&P is supposed to be given back. That's 284 points of bull glory and bear pain.
  1. 38.2% retrace = 108 points. S&P 950 - 108 = low S&P 840s
  2. 50% retrace = 142 points. S&P 950 - 142 = low S&P 800s
  3. 61.8% retrace = 175 points. S&P 950 - 175 = mid S&P 770s
The latter of the 3 would do a good job of getting people to give up on the stock market (duped again!), after being fooled by the green shoots (and CNBC pundits for the upteemth time), while creating a (wait for it) longer term reverse head and shoulders bottom (which is bullish). The latter of the 3 scenarios would also work great with my call for a return to S&P 750 (close enough for government work). As I've been saying a convenient 10% sell off, so "all those who missed the first rally could jump on board" just seems too convenient. 10% down from 950 is just over S&P 850 so I could still be proven wrong on that point. I don't see any technical reason for "just over S&P 850" to be a place bulls make a stand either.

If all that above is gobligook to your ears, don't worry about it - it's basically just part of the now dominant "squiggly line analysis" that program traders of the HAL9000 variety use to tell us where the stock market should go. Remember computer trading is approaching 50% of all trades as of last week. Fundamentals are so 1990s.

If it all seems Greek to you (or Italian) just keep reading along and we'll update you along the way.

Leonardo of Pisa (c. 1170 – c. 1250), also known as Leonardo Pisano, Leonardo Bonacci, Leonardo Fibonacci, or, most commonly, simply Fibonacci, was an Italian mathematician, considered by some "the most talented mathematician of the Middle Ages".[1]

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