Wednesday, February 3, 2010

Very Obvious Lines in the Sand [Charts]

After a much needed oversold bounce [So Far, So Perfect Oversold Bounce], we have quite possibly the most obvious line in the sand in the S&P 500 chart that has appeared in a long time. Two moving averages are just over current levels on the S&P 500, providing resistance .... if the market can break above those the play is (a) go long and/or cover shorts ... if the market cannot than (b) short and/or sell longs is the idea.

[click to enlarge]

As I wrote in the weekly summary a bounce was to be expected, but it surprised me in how fast it happened and how we gained the full 30 S&P points in a matter of 48 hours.  Much of it coming in premarket/first 30 minutes Monday, and then in a concentrated amount of time Tuesday.  Much easier for very nimble individual traders to catch that sort of move, than trying to move into 20-25 individual positions first thing Monday morning (or if one didn't care about weekend risk, Friday afternoon as the market broke down) - and then flipping out of it all late yesterday, waiting to see how the above situation resolves.  So we are effectively tabled until S&P 1110-1115....

The Russell 2000 and NASDAQ look identical....although the NASDAQ continues to be the laggard

And in our world of monolithic trading with perfect correlations of course the dollar chart is the complete inverse - if the equity markets break back out to the upside, expect the dollar to have a good chance to break back down below the 200 day.

As I said late last week, and again yesterday - if history is any guide what should happen is the dollar, after its pullback should start a new leg up.  And the equity markets, after their oversold bounce should hit resistance and falter.  But anyone who went by that playbook for the majority of 2009 was crushed.  Which leads to hesitation by those who were run over by bulls....

I continue to use the dollar as a lower beta hedge against long positions, and nothing yet in the chart spells trouble.  In fact the 20 day is just about to break over the 200 day.

Market moving news will be this morning's ISM Services which is a far more important report than ISM Manufacturing with the new paradigm, finance based service economy the US clutches to, as well as Friday's job reports.

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