Now That’s Support! July 13th SP500

Jul 13, 2009: 10:03 PM CST

Bulls managed to defend the 875 level both last week and Monday morning, which is an absolutely CRITICAL level for them to hold - a solid close beneath that level will trigger a massive sell signal… but we’re not there yet.

Price bounced off the ‘demarcation line’ of 875 as well as the 200 day SMA and last weeks’ “Tri-Star” doji pattern.  Let’s see it all.

It’s rare when we gat a ‘tri-star doji’ but it is often associated with key turning points in the market, particularly when they form at a key support/resistance area.

I said they don’t happen often, but the last time the pattern formed was in June at the 950 resistance level.  Notice what happened there.

The volume and momentum divergence is still in play - bulls can’t change that in one day - so the dominant structure is still down, though we could be forming one more upward retracement.

In terms of overhead resistance, pay close attention to the 900 level (which is where we reside now).  This reflects the weak confluence of the 20 and 50 day EMAs which would have (could) set up a “Cradle” sell trade when/if these average cross… but again we’re not there yet.

Goldman Sachs (GS) reports earnings tomorrow and they’re expected to impress - but the question is if expectations are too high.

The dominant technical structure now resides beneath the 900 level with headwinds for the bulls, but a surge in Goldman will boost the Financials which will rally the market right through the 900 resistance level so it’s probably best to wait for a clear direction to emerge to get a better picture of what the larger investors are thinking about this market… and it might not be what the mass public is thinking.

I took a deeper look at the S&P 500 (starting with the monthly frame and stepping down all the way to the 30-min chart) on this week’s “Intermarket Technical Report” (mentioning that odds seemed to favor a short-term ’surprise’ pop-up this week) and also mentioned that the intraday structure on Friday hinted for a bounce in my new “Idealized Trades” daily report - please check them out for more information.

Corey Rosenbloom, CMT
Afraid to Trade.com

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  • Trealman
    Woo this is a nice blog, i would love to read more.

    respect
    harsel gibs
    ______________________________________________
    watch scrubs | watch west wing online | watch lost
  • Tom
    Methinks we are gearing up for a meltup via short squeezing.
  • BuilderBob
    Something else nobody seems to be recognizing; a very clean A-B-C correction from the near term top.........right into support, seems all the pundits and technicians were expecting a self fulfilling prophecy, shame on me for not executing!!!
  • Dead Bear Here :(
  • S135
    The 200ma on the monthly has the DOW and the COMP trapped, not to mention the bear channel down trendline from May and August last year. Very unlikely either of these will be breached.

    Yesterday was a bull trap as Meredith W. is a bear, and bears short at pumped up prices. She got that on Monday for herself and other smart money bears.

    Game on.
  • Right - I mentined the NASDAQ position in

    http://blog.afraidtotrade.com/nasdaq-comes-into...

    and the Dow is roughly similar.

    We've got to close solidly beneath 875 or else it could be a bear trap.

    I would be more comfortable shorting on a clean break of 870 which could set-off an avalanche of long (buy) stop-losses and trigger in new short-sales but right here you're right it's an epic struggle. Supply & demand rules markets and our goal is to figure out who is likely to win (or winning) and go in that direction. At a critical crossroads - per Mark Douglas thinking - it's probably best to wait until one side emerges as the victor.
  • dacian
    "...and it might not be what the mass public is thinking"

    And what the masses are thinking?
  • Dacian,

    Virtually everyone I've talked to or read online is discussing the Head and Shoulders and some are even taking it as a requirement that it will happen.

    When sentiment gets so strongly in one direction, a 'surprise' is often more likely than those expectations being filled. Even if it's a temporary bounce, it will surprise a lot of people who are convinced we're going down from here.

    Then again, I see overwhelming evidence for a downside break, but nothing is guaranteed.
  • Anonymous
    Corey, I thought you might find these interesting. We never want to be contrarian just for the sake of it, but it is still very important to keep track of market sentiment. The first link has some magazine covers that are very telling.

    http://theartofcontrariantrading.blogspot.com/2...

    http://theartofcontrariantrading.blogspot.com/2...

    He also says:

    As you know if you have read my book or followed my blogs I think that an enormous bearish crowd developed in the stock market during 2008-09. It is certainly bigger and more unified in its bearish convictions about the economy and the stock market than any I have seen since 1966. Bearish crowds this big don't disintegrate quickly. And the screen shot above is just one sample of the relentless negative story about the economy that is still being told by the media.

    Such stories belie the assertions I have heard from bearish market commentators recently that "everyone is bullish and euphoric" about the stock market. The public is decidedly NOT euphoric. Quite the contrary, it is depressed - much more depressed than is the economy, in fact. It will be years before the psychological damage wrought by the Crash of 2008 is undone.

    As a side note I might also point out that the "everyone is bullish and euphoric" theme is a typical mistake made by investors who like to think they are contrarians. They seize on whatever evidence they can find that makes their own prejudices a "contrary" opinion. But one must be careful to fade the public, not some small group of professional market commentators. And there is no doubt in my mind that the public right now is extremely bearish.
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