Click on Chart to EnlargeThe chart above is the S&P 500 symbol $SPX. Today broke a major support level, and almost certainly is price confirmation that the market rally has topped. We will probably see the November lows broken in the next couple weeks.
The dark blue box on the chart above is the main support area on the S&P from which to expect a bounce that will provide a good short-selling opportunity, which on this blog translates into buying an ETF that is correlated inversely with the S&P 500. The light blue box is the area that I would expect typical reaction rallies to peak and is the area that I would be quick to recommend the next trade on this blog.
For interesetd technical analysts, the top horizontal pink line is the primary major support level that was broken today. In recent years and during this bear market, the market has tended to break support and then quickly advance several percent over a period of a few days giving the appearance of a false breakdown. That advance will typically move back to the middle of the recent leg down, only to fail and then see the market much more quickly accelerate to the downside.
With that in mind we should be looking for a reactionary buying thrust in coming days, though there is no obvious support until 819 on the S&P 500 and there is an unfilled gap up from the November bottom at 800ish. So I expect we either have another ridiculously bad day tomorrow that goes below 819, or we get a strong buying thrust. I would prefer the second scenario, but either way, an opportunity should present itself to make a trade soon.
For those who wish to sell short an index fund, I would place a limit order to sell short at a price corresponding to 870 on the S&P 500. If we get a buying burst the next day or two, then I would expect the market to have trouble going higher than that. If the market drops hard tomorrow, even if it reverses during the day, I think limit price would have to be lowered to the 850 area from that point.
Pete
No comments:
Post a Comment