Magic Mystery Buyers at SP500 Level 1040 Define Bull Bear Battle

Aug 28, 2010: 3:09 PM CST

From a pure price standpoint, as I highlighted recently in the post “Pure Price Levels to Watch in the NASDAQ, Dow, and S&P 500,” the levels I highlighted came into play in a major way on Friday, with the market sell-off stopping in its tracks at the key test of the 1,040 level in the S&P 500.

Specifically, buyers rushed in again to scoop up shares/contracts there – creating the fourth such major bounce off this level in 2010.

Bears be warned – this level is becoming a literal brick wall.

After the May “Flash Crash,” buyers rushed into to support the market (creating support might be a better term) at the 1,040 level with a huge long lower shadow hammer candle.

We came back to that level in early June and a rally from 1,040 to 1,130 (90 points) materialized suddenly.

For whatever reasons, buyers failed to hold support at 1,040, and instead supported the market at 1,010 on the early July lows as the market rallied again to test 1,030 before falling back recently in August to test the established support at 1,040.

And twice this week, as we see below, buyers rushed in to save the day again – in a convincing way:

We had an initial steep plunge on the morning of August 25th which was stopped int its tracks at the 1,040 level, resulting in a sudden 20 point rally.

And on Friday, following the GDP report, the market sold-off to the 1,040 level again, but this time buyers came in even more violently – no, that big lower shadow is not a mistake.

If you check out the 1-min and 5-min chart, you’ll see a sharp plunge that stops exactly at 1,040 again and the market is now 25 points higher in one day.

In my intraday reports, I often advocate thinking in “concepts” instead of individual trades, and this is a higher timeframe concept I’ve been writing about each night – the ‘mystery magical support’ at 1,040.

Seeing this level as a prior support zone, when price again retested the level, we thus expected the level to hold again – and wow it sure did.

This doesn’t have to be complicated – it’s really Technical Analysis 101.

Look at the chart, find obvious support or resistance levels, and then expect those levels to hold in the future unless proven otherwise by a breakout.

We tend to overcomplicate things and get caught up in the “Hows and Whys” of what happens, which leaves our minds twisted and turned in so many conflicting directions.  That’s why it can be helpful every once in a while to pull all the indicators off the chart and just let your eye be drawn to key levels that the market deems to be important.

Right now, that level is 1,040… and above that, 1,130.

All things being equal, keep your attention on those levels until the market proves otherwise – and until then, it may be best to expect the market to play ping-pong between those two prices.

Corey Rosenbloom, CMT
Afraid to

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