A Short-Term Technical Look at the SPX

by Dan August 28, 2011 11:10 pm • Commentary

Friday’s market action was not what most expected given the news that we got……GDP, while not that much worse than expectations, was by no means encouraging for those hoping that we are not heading into a double dip, and the Fed Chairman’s speech, while not offering the stimulus goodies that most had hoped for, did not completely shut the door on a sort of “Christmas come early” at their Sept 20th FOMC meeting…..I guess the market rallied because the news was exactly what most expected but the reaction was supposed to be a crash……

I can’t help but think that the anticipated stress of the potential disruption by Hurricane Irene driving right up into Wall Street’s front yard added a bit of fuel to the already bearish fire, and now with that passed, we may settle in a bit after a tumultuous month into a well deserved low volume end of the summer lull, capped by a long holiday weekend.

Looking at the SPX, barring any negative news out of Europe this week, we could have seen a little near-term bottom that could take us back to the break-down level of 1250….let’s look at the charts…..

[caption id="attachment_4374" align="aligncenter" width="300" caption="1 yr SPX chart  from Bloomberg"][/caption]


The longer term chart (above) shows the 1250 level, that once was key support, now as key resistance and in some ways a close above that level would not only mean that we are unchanged on the year, but that we would likely end up in the green for 2011, as the summer swoon could merely be explained away as a weak spot in the economy that was amplified by the dysfunction in Washington and the infectious sovereign debt in Europe….Hell, the Fed chairman basically said it himself in his speech Friday…..this is not my view, but clearly would be a popular one by bulls.

[caption id="attachment_4375" align="aligncenter" width="300" caption="2 Month SPX chart from Bloomberg"][/caption]


The 2 month chart (above) is interesting to me as it shows how it appeared we were destined for new highs on the year in early July to basically crashing almost 19% in less than a month…..the damage was far more significant in many single names and markets abroad…..during the period below 1200 we held the 1121 closing low on 2 separate occasions…..The chart (below) demonstrates this point and that is basically the last line of defense if we come back to these levels……and let me tell you people, if we test and break 1121, the third time is likely to be a charm…..

[caption id="attachment_4376" align="aligncenter" width="300" caption="Aug 2011 SPX chart from Bloomberg"][/caption]


So I am going to look for opportunities on the long side to 1250 and look for some names to play catch up on a short term basis, and then look to take profits and put shorts back out close to 1250….