As I've written a few times now, I don't believe in "quadruple bottoms" - hence I believe S&P 1040 is destined to break. After that happens I expect some panic selling and then an oversold bounce. The problem nowadays on the long side is while the oversold bounces are extremely violent (we tend to get +3% days) they are not leading to lasting positive times. It's just quick flip trading, useless to building intermediate term positions.
As this chart shows 1040 has been hit 3 times now and today could be considered the 4th. This level is important because below 1040 the support gets very iffy for almost 100 S&P points. Due to the 45 degree angle rally without relent we enjoyed much of 2009, especially post July 09 there is little real support. I've highlighted 3 support areas that mark what I consider weak support via purple lines below - these indicate in reverse chronological orders low of October 2009, September 2009 and August 2009.
[click to enlarge]
If those levels are breached we are talking the highs of June 2009 which are just over S&P 950. Obviously we are not talking a straight line down and indeed I expect even if this happens for the bears to be blown up here or there with the bipolar market that can follow a 90% down day with a 90% up day. But indeed, the tables could be turning very quickly in a short amount of time.
This is setting up for a very interesting Friday since expectations are for quite poor employment data after the "punked" moment delivered to us by Obama and Biden a month ago. The market is going to be oversold barring a big rally tomorrow or Thursday and expectations are low. In a perfect world we have a washout in the next day or two (I don't consider today to be a washout) setting up for a potential oversold rally Friday. But again, these rallies - while vicious - are fleeting until the S&P 500 gets back over the 200 day and 50 day moving averages.
A longer term issue is the 'death cross' - that is the 50 day moving average moving below the 200 day. We are not that far away (a week or two). So intermediate term - things are looking quite nasty, even though on any individual day bears can be roasted on an open fire by our traditional premarket magic, followed by a +3% session. This despite what I think are going to be some stellar earning reports in about 3 weeks by the new masters of the universe - the U.S. multinational corporations.
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