Monday, June 7, 2010

On the Brink

After holding firm for a few days, the lower line in the sand outlined in last week's post seems ready to give way. Though the bulls gave it a valiant effort trying to breach the 1105 SPX resistance level last week, the employment report ushered in yet another surge in selling pressure. With today's close of 1050, the SPX is knocking on the door of a breakdown below a significant weekly pivot. Assuming we see more follow through to the downside, this break will serve as yet one more nail in the market's technical deterioration coffin and would be the first time we've broken a weekly pivot low since the March 2009 Bear Market low.

Today's graphic highlight's a weekly chart of the S&P 500 with two sets of fibonnaci retracements displayed. The first set of fibs spans from the 2007 market top (1576) to the 2009 market bottom (666) and is displayed in blue. The other spans from the recent 2010 highs (1219) to the 2009 market bottom (666) and is displayed in dark green. While I'm not an avid fan of using fibonnaci retracements on smaller time frames, I do find them quite effective when identifying key levels that may act as support or resistance on the weekly chart. Following 1050, the next two downside targets on my radar are 1015 and 950 (click image to enlarge).

[Source: MachTrader]

Today's surge in gold certainly helped our GLD June 121-124 call spread outlined in Evolution of a Bullish Risk Rocket. If GLD is able to muster up another dollar or two rise we should be in prime position to roll into a butterfly or condor by adding a short call spread to our position.

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LluĂ­s said...

Hi Tyler,

I like the simplicity and smartness of your SP analysis, in the mid term it seems difficult that the index could hold 1050 level.


Tyler Craig said...

Agreed. We may be in for a short term bounce here, but I still give the SPX the benefit of the doubt it eventually takes out 1050. As with any forecast it's important to know when I'm proven wrong, so I'd say a break back above 1105 would do it.


somethings always on the brink.