Resistance to Hold or Break on SP500 Daily Feb 16

Feb 16, 2010: 1:32 PM CST

I wanted to do a quick update showing the key resistance level at 1,100 that either will hold as an overhead sell signal, or break as buyers continue pushing prices higher, triggering a “popped stops” rally if they can move the index above 1,100.

Let’s see this on two quick daily charts:

We see that price bounced off the 38.2% Fibonacci retracement taken from the July 2009 low to the January 2010 high, forming a long lower shadow hammer/doji candle.

We’ve been in retracement mode since, as price has rallied today to test the 20 and 50 day EMA – which is currently in a bearish orientation.

The $64,000 question remains:

“Will price break above resistance, thwarting the short sellers one more time (as in early November) or will this time resistance hold and send prices lower?”

The 1,100 level reflects at least three confluence methods that – if broken – should lead to a rally higher – perhaps back to 1,150 – in classic “Popped Stops” (short squeeze) fashion.  However, if sellers step up here, we could look for a move back to 1,050.

1,150 or 1,050 … depends on what happens at 1,100.

Here is a “zoomed in” view, showing the following convergences:

50 day EMA:  1,097
50.0% Fibonacci Retracement:  1,097
“Psychological” Round Number Resistance:  1,100

It’s probably a good idea to have a trading contingency plan in place for whatever happens at this “Line in the Sand” between bulls and bears.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

10 Comments

10 Responses to “Resistance to Hold or Break on SP500 Daily Feb 16”

  1. redvetttes Says:

    What your take on the volume,one hell of a rally with nobody showing up

  2. TheYenGuy Says:

    Corey, today's stock market action is simply a “dead cat bounce”

    My investment maxim is simple: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength.

    Gold is in a bull market as gold, $GOLD, rose to $1,119; therefore, continued price dips in gold represent buying opportunities; yet, given the Sovereign Debt Crisis in Greece, and the recent sell off of US Treasuries, TLT, I recommend straight out buying gold, at this point.

    Yes, one's wealth is now best garnered and protected by investing in gold at BullionVault.com, GoldMoney.com, buying British Sovereign Coins, and buying the gold ETF, GLD, in a trust account, not a brokerage account.

    Today was a bruise to those short the stocks, as “stocks popped” as can be seen in your chart — it's a short selling opportunity, given the above maxim.

    Sort selling opportunities abound especially in the HUI Precious Metals ETF, GDX, which is comprised of gold mining stocks; as well as the Canadian stock market, which is laden with mining stocks, traded by EWC.

    My suggested list of ETFs to sell include:
    GDX Mining Companies
    SLX Steel

    EDX Canada
    RSX Russia
    EWZ Brazil
    BRF Brazil Small Caps
    INP India
    FXI China
    TAO China Real Estate

    EWY South Korea

    GUR Emerging Europe
    FEZ Europe
    EWP Spain
    EWI Italy
    EWO Austria

    RZV Small Cap Value
    HAO China Small Cap

    ITB Home Builders

    ROB Global Luxury
    BJK Gaming
    SPG Simon Property Group

    DRF International Finance
    IYF US Finance

    SCZ Europe Small Cap
    DFE Europe Small Cap Dividend
    EWX Emerging Market Small Cap
    DGS Emerging Market Small Cap Dividend

    EEM Emerging Market

    Altenatively, Bear Market Stock ETFs which are buying opportunities include
    EEV Proshares Ultrashort Emerging Markets
    REW Proshares Ultrashort Technology

    SJH Proshares Ultrashort Russell 2000 Value
    TWM Proshares Ultrashort Russell 2000

    EPV Proshares Ultrashort Europe
    FXP Proshares Ultrashort China

  3. Diggy | Forexhabits.com Says:

    I agree Corey,
    1102 is my own big resistance. Today should be a small range day so I'm curious to see if 1102 or 1100 will hold this beast down.

    If this resistance holds then the downtrend will resume which I expect because if you take a normal daily SP500 cash chart, the recent low was an exact touch of the 200MA. Going back the past few years, every time the index touches the MA, it does it 2 or 3 times. We have only had a single touch at the recent lows, so I am 90% confident we will see another test of that 200MA (at least around the 1050 level.

    Just my opinion 😉
    Cheers!

  4. Corey Rosenbloom, CMT Says:

    We do often have contraction/compression after such a big day… I'm still surprised on the volume, though.

    It's OpEx week so we can see some interesting but unusual moves.

    Interesting thought – I hadn't thought about it (200 SMA) in those terms. Will be watching for a test!

  5. Corey Rosenbloom, CMT Says:

    Nice list of ETFs – thank you for sharing.

  6. Corey Rosenbloom, CMT Says:

    I think the rally took more than a few traders by surprise, leading to a scramble to take stops/short squeeze which can be 'panicky' and can occur on less volume.

    Otherwise, it might be due in some part to OpEx Friday, or just holiday volume – it was Mardi Gras after all.

    But seriously, it's a classical bearish sign, but in this market, we've seen rallies that were low probability and low volume that occurred. Such is the current environment now.

  7. Nick Says:

    Corey, it did break 1100…next is what? Do we need a firm close above 1100 to confirm that we'll head to 1150 or just breaking 1100 was sufficient enough for you?

  8. SP500 Breaks Resistance on Declining Market Internals - A View Inside | Afraid to Trade.com Blog Says:

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  9. Nick Says:

    Corey, it did break 1100…next is what? Do we need a firm close above 1100 to confirm that we'll head to 1150 or just breaking 1100 was sufficient enough for you?

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