Bulls Willing to Do Anything to Avoid Falling into Market Abyss

Jun 10, 2010: 11:31 AM CST

I think all of us chart watchers are focused intently on the epic Battle of 1,040, but I wanted to pull the perspective back for those who aren’t as accustomed to studying charts to show exactly why the market is balanced “on the Edge of a Cliff” and why the bulls holding above key support here is of utmost importance to them.

Let’s start first with the Monthly Chart and build down from there:

The 200 month simple moving average – the last line of support from a multiple timeframe moving average perspective (that just means looking at moving averages for potential support zones on three timeframes) rests at 1,048.

As chartists, we hold prior price lows as important expected support levels, and those include:

1,044 from February 2010,
1,040 from May 2010
1,042 from June 2010

then also

1,029 from November 2009
1,019 from October 2009

In terms of standard analysis, there is nothing major in the way of support under these levels except the round number 1,000.

I think the Weekly Chart probably shows the “Abyss” most clearly:

We can see all the price lows that form the boundary or the quite literal “Edge of the Cliff” for the market.

The edge is here, and the final level is 1,000.  Under that, we’re looking to the July 2009 low at 850 as the next potential support zone.

And if we’re under 850, we look back to 666.  That’s just using simple technical analysis – nothing complex.

Keep in mind we are under all moving average levels – the waving lines on the chart – which now are expected to be resistance – no longer support

Notice how price bounced off these averages on the way up in 2009 and fell down from these levels on the way down in 2008.

Finally, here we are at the Edge of the Cliff:

The fact that we see three LONG lower shadows in February, May, and June underscore to me how seriously the market participants take this level.

They’re willing to do anything possible to keep the market above these levels.  As long as we’re above them, it’s like were looking down into an abyss, and it’s dangerous to look over the edge of the cliff, but just because you’re at the edge doesn’t mean you’re going to fall over.

However.

If the market does fall over the cliff, it will be far more difficult to support the market than it would be above the level.

It’s like trying to catch a person who’s leaning over the edge and pull him back over, or trying to catch him as he’s falling.

I cannot underscore how important it is to monitor the current level extraordinarly closely – from whatever perspective or position you have.

From a simple charting/technical analysis perspective, there is nothing – chart wise – to hold up this market from a likely downturn into a new downtrend if bulls lose the battle of 1,040 (then 1,000).

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

10 Comments

10 Responses to “Bulls Willing to Do Anything to Avoid Falling into Market Abyss”

  1. terlyn Says:

    Can you explain why the $VOLDSPD has been going up all day, but the price is in a rounded reversal? Thanks.

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  4. Theyenguy Says:

    Yes, it is important to hold at the 1040 level, as there is nothing but an air pocket below; the Euro went oversold and the US overbought. So today, the currency traders went long every currency they could, and short the Yen.causing stocks to gap open higher.

    There was a terrific stock rally in foreign large value, energy Asian, and European shares; a US Dollar sell off, a slight sell off in US Treasuries and Gold. However, it should be noted that the charts of the best performers show a rise to resistance and not a breakout.

    With the downturn in the US Dollar, the standard-bearer of international currency and trade, we are entering into an age of competitive currency devaluations, and greater volatility in stock, bond and sovereign debt trading and values

    US Treasuries, BAB, IEF, TLT, and ZROZ fell today, May 10, 2010. The Direxion 3X Bear of US Treasuries, TMV, rose. With a falling US Dollar, $USD, it is highly likely that US Government Bonds have topped out. The chart of IEF, shows a dark cloud cover candlestick and a parabolic turn lower today.

    Despite today’s rise of stocks globally, VT, a death cross has appeared in the chart of stocks relative to debt, VT:AGG, suggesting that today’s currency trade rally cannot be sustained. The only ones who will benefit, and are benefiting from today’s rally will be the currency traders; they always move the stock market; they and those who are invested in credit default swaps as these move sovereign debt and banking stocks.

    For a complete analysis and charts, one can use the link provided
    http://theyenguy.wordpress.com/2010/06/10/stock

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  7. Bob Says:

    Monthly; support of the 200 sma seems a likely place where price will pause.

    Weekly; Price being under all the major trend lines and now acting as resistence, puts price in a tenuous position.

    Daily; A fractal five wave structure would support a bounce here. I'm looking for price a possible rally in an ABC form back, back up to the 200 sma.

  8. Frank Ochoa Says:

    I like the top-down analysis, Corey!

    The 1,040 level is important across timeframes, which can be extremely powerful. This is a call to action to various types of traders, from day and swing traders to position traders and investors…The more types of traders watching a level, the more likely you are to see a big reaction at that level.

    Also of note, 1,040 has pivot-based support in a weekly chart, daily chart, and intraday charts…multiple timeframe confluence at its best!

    Cheers!

    Frank

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