Monday, June 14, 2010

S&P 500 Fails at Today's Attempt to Break Resistance

This most recent attempt has thus far failed as the 200 day (simple) moving average held yet again.  Providing 'support' ironically is the 20 day moving average.  I've charted the 'simple' moving average below simply because this is the one that seems to be respected by the market the last 6 weeks.  You can see 4 separate days in the past 3 weeks where an intraday high as hit the 200 day simple moving average and that's been the high of the day... almost as if computers are running the show. ;)

[click to enlarge]

Some other interesting thoughts:

  1. We gapped up today, so this faltering down to the S&P 1094 level is helping to fill the gap; which can be construed bullish in my eyes because if we are about to break out to a big run, taking care of gaps is a good thing.
  2. As I type this with the market +0.3%, if you exclude the premarket follies, we are down for the day. (please note I am excluding the first few minutes of the session in which the "gap up" is followed through during normal market hours)  That should sound familiar since it happens week after week.  So many days that are negative during market hours (post 9:35 AM) yet "positive" in premarket when the trading is thin and 'someone' can influence things.
  3. I have NO idea if we rally or falter from here.  Everyone who trades on technicals knows the key levels and we're all watching the same thing.  All you can do here is stay small, be hedged, or partake in rampant speculation betting on one side or the other knowing you have zero advantage other than your lucky rabbit paw.  But one thing I can be sure of, is whichever way we end up going someone will be happy to let us know "I told you so!"  For all I know we finish +3% today, or in the red.  I'll adjust when the market gives much better signs.  We still remain in the 'range' as far as I am concerned.

If you are a long time reader you know how often I've said this market is acting atypical.  Since March 2009 "resistance" has not been resistance and we've blown through levels as if they are swiss cheese.  Which makes the bears nervous because rules that *should* work, have not worked.  It's like Charlie Brown running to kick the ball, and Lucy pulling it away.  Lately, on the other hand... the market has respected technical levels far more.  Which is very comforting for those of us who have been around a while.  For much of the past year and a half it's been like walking around a dark cave, with a blindfold and someone with 1 day experience in the market can make better calls than someone with 15 years.

One of my favorite guys to read during the day, Rev Shark at completely agrees with these thoughts (we've both been extremely frustrated this past 18 months as 'old rules' have meant zilch):

During the market rally that began in March, 2009, many technical traders struggled because the resistance levels often meant nothing. We'd rally on light volume and cut through obvious resistance, as if it didn't even exist. Anyone who had become more cautious, or had the audacity to actually put on shorts, felt very frustrated when the market keep on running without a care in the world.  

Since the top in April, the role of key resistance levels has changed. After the flash crash in early May, we bounced back and quickly failed near the 50-day simple moving average on the S&P 500 around 1172. We rolled over and found support almost exactly at the 1050 February low. Next came a number of bounce attempts, each failing around 1100-1108, which is the 200-day simple moving average.

The way that resistance and support have worked over the past month is almost too perfect, but given how much they didn't matter for well over a year, it's a refreshing change. Now we are at a level where it is going to be very interesting to see if the bulls have the capacity to make it through that 1108 level. It will be a substantial technical hurdle, but the bounce leading up to this attack doesn't have much momentum. It is going to take some work to hold the 200-day moving average breakout. 

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