The SP500 Really Has to Hold this Level

May 15, 2009: 1:44 PM CST

There’s an epic struggle (maybe not that intense) to hold the rising 20 day EMA on the S&P 500; the battle has already been lost on the NASDAQ.  Let’s take a very quick look at this level and what it might mean.

Just a quick, laser-focused intraday update to state that the 882.49 level ($88.41 in the SPY) MUST be held as support for the bulls for any hope of higher prices in the short term.  A failure here, particularly a close beneath this level should we get a push to new lows intraday, would be devastating and would set-up an almost certain test of the 50 day EMA just beneath 860.

One thing to note is that volume has been light on the retracement pullback which is slightly bullish, though volume has been steadily trailing off since it peaked in early March (a non-confirmation of bullish higher prices).

This is why intraday traders might have been confused as to why price seemed to hold a floor at the 882 level – it’s because the higher timeframe players are battling it out for supply/demand control of this level.  Intraday traders are best served by anticipating key levels like this on their intraday charts.

Watch this level very closely going into the weekend and beyond.

Corey Rosenbloom, CMT

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7 Comments

7 Responses to “The SP500 Really Has to Hold this Level”

  1. dacian Says:

    closed at 883 🙂 is this a circus or what? went below 20DMA intraday. Does that mean in your opinion more weakness is possible? thx

  2. Corey Rosenbloom, CMT Says:

    Totally a circus.

    An intraday penetration is not as powerful as a close beneath, but it's a chip at the foundation for sure.

  3. Don-Da-Mon Says:

    Off topic a bit, but a post someone made within a week or two offered a stockchart with the S&P500 and USD weekly that has got me thinking. If traders are always looking for a retest of a bottom, then that chart shows that we had that test in early March. Since the stock market often moves so much based on the dollar index, why wouldn't we always look at these together when trying to determine timing, targets or ups and down in the market? It also might help explain why the current rally had longer legs than most thought, without a significant pullback.

    Since my 401k is either All Stock (SP500) or all dollar (Money Market) when I watch how they move relative to each other, I can tell when I actually increased or decreased in value. Some days, when both the SP and Dollar are down then you know that this is a true value loss in the SP.

    Does this make sense? Have you seen anyone use this in their evaluations?
    I fear the fed and treasury will keep us all thinking that the economy is ok by keeping the SP relatively stable while the dollar decline, hence the stable SP is actually a loss in stock value. I'm still trying to figure out how I can use this.

  4. Vol Says:

    What you are noticing is that there is no real growth, only nominal growth.
    that is, the SP500 is just counteracting for weak dollar and inflation.

    real growth happens when the economy produces innovation that improves efficiency thus making us better/faster at doing our jobs and increasing productivity.
    (the last big innovation was the internet which led to the tech bubble but at least there was an innovation behind the bubble. we just overestimated the effect of the innovation and thus the bubble)

    currently, we just have feds manipulating money supply and asset prices.
    (the housing bubble had no real innovation. people say it is “financial innovation”. i call it advanced paper shuffling. did the increase in house prices help anyone perform their job more efficiently? Hardly. you can argue more people had jobs but those jobs were created with money borrowed from our posterity via tools like HELOCs, etc.)

    to answer your question, if the SP500 is largely moving only due to dollar losing its value, the way to exploit that is to play with commodities.

  5. Corey Rosenbloom, CMT Says:

    Don,

    Yes, you would do best to look at the charts together. This is the beginning of intermarket analysis.

    You're looking at how the four key markets relate: The Dollar, Commodities, Bonds/Interest Rates, and Stocks. There's a delicate interplay in how they all function, such that movement in one market directly influences movement in another whether in the same or opposite directions.

    Keep in mind that you would – almost nonsensically on the surface – have a rising stock market almost by definition in a period of inflation (dollar falling, inflation rising, commodities rising, stocks rising as an effect of inflation) etc. Now, inflation is 'bad' for stocks, yes, but think of stocks as denominated in dollars.

    A falling dollar is a boon to the market, though a falling dollar is associated with rising inflation.

    Vol did a good job of explaining this in the follow-up comment below.

    And yes, if you feel inflation is a coming reality, go long commodity ETFs or go hold the hard asset (like gold).

  6. meques Says:

    finally, looks like SPX closed below 20 dema. but without SPY confirmation! wow, they just dont want to fall.

  7. meques Says:

    finally, looks like SPX closed below 20 dema. but without SPY confirmation! wow, they just dont want to fall.