Tuesday, August 31, 2010

Battleground

In continuing with the technical analysis theme laid down yesterday I wanted to make a few observations regarding the state of the S&P 500 Index. It strains the obvious to point out the significance of the 1040 level over the past year. Disregarding the short lived breach in July, it has held steady as a key line in the sand denying bearish advances time and time again. As the market action has become more and more erratic in recent days, it's been interesting to watch the interplay between the bulls and bears surrounding this pivotal level (click image to enlarge).

Source: [MachTrader]

Notice the sharp rallies quickly following each bearish attempt to breach this support level.
Were we to view these skirmishes using the SPY coupled with volume, you'd also notice a sizable amount of volume rising up during these engagements. Suffice it to say, the bulls are proving quite resilient and quick on the trigger in defending their turf. However, with each additional attempt at cracking this level, the resolve of the bulls is likely fading.

When and if the bears finally succeed (I'm in the "when" camp for what it's worth), this demarcation line will stand as yet one more victim, albeit the largest to date, to the current deterioration of the market.

For related posts, readers can check out:
On the Brink
Lines in the Sand
State of the Market