They always say “The Third Time’s a Charm,” but will that be true as the S&P 500 once again tests its major line in the sand between bull and bear?

Let’s see:

I cannot underscore how important the 1,040 level is to technical analysts – a break under this level officially turns the price structure on the daily chart to a downtrend using all major trend reversal classifications, including:

A “Death Cross” in the 20 and 50 day EMA
Price closing under the 200 day SMA (some use this alone to define downtrend)
Lower High, Lower Low, price breaking Lower Low (from February)

Remember, a downtrend is defined as a series of Lower Highs and Lower Lows – and a break under 1,040 locks that definition in place.

Plus, the TV Media will report on a “Break in the market to new 2010 lows” which could further spook nervous investors, causing them to sell stocks in their portfolios.

It could also trigger a wave of short-sellers putting on positions on a confirmed close under a critical support level.

But all of that hasn’t happened YET.

As of today, the bulls/buyers have successfully defended the key level, and as long as that’s the case, the market structure could hold up and come back literally from the edge of an abyss.

This is why it’s important to watch “Line in the Sand” turning points (prices) in the market that serve as reference levels.

I’ve been discussing this repeatedly each evening in my daily report for subscribers, so check that out for additional analysis as we get new data from each day’s activity.

See my prior posts on the Line in the Sand:

S&P 500 Poised on the “Edge of a Cliff”

Edge of Cliff Level to Watch in the Russell 2000

You can almost feel the tension from both bulls and bears at this level – so continue to watch it very closely.

Corey Rosenbloom, CMT
Afraid to Trade.com

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