Sunday, April 19, 2009

S&P500 Weekly Commentary April 19, 2009

*Skip to bottom to see summary forecast of week 7 of this bear market rally.

Summary Performance of Week 6 Bear Market Rally:

For week six I was correct in that it was going to be another up week. I would also like to point out that 870 resistance held quite nicely. To be very specific, resistance could be argued at 869.89 while the close of last week was at 869.60. I was also correct in saying that earlier in the week would experience down days as there was lingering negative sentiment from week 5.

Overall, my analysis for week 6, though not perfect, was much better than week 5's.


Charts and data I am considering this week (taken from and blogs I follow):
(Short term is for the performance of the week and long term is in terms of weeks and months)

Chart 1: Long Term Trend


Chart 2: Resistance on daily chart


Chart 3: Forecast and Short term trend


The circles are on opening of the week day, and of the close of the week day (red down days blue are up days).

Chart 4: Short term trend


Table 1:

Here is an interesting Blog entry I found on TraderFeed to complement some analysis where I am lacking:




Technical View:

Last week resistance at 870 held beautifully. This week I noticed while fiddling around on a possibly higher resistance level at 877. With these two key levels in mind, I will be looking to see if the S&P500 can get a strong full close above 870 and would expect another up week if prices can close strongly above 877 as well ( see chart 2).

Currently, I think that the fact 870 held so well is reflective of its significance as a psychological level (obviously this would be proven wrong depending how fast prices can close above 870.

One can look to sentiment to see if 870 will be broken during the week. I will say that investors are entering this week cautiously which will make forecast much harder this week. The CBOE index and volume call/put ratio is showing investors turning a bit more bearish from Thursday to Friday last week despite higher highs. However, the majority of headlines I'm seeing in the news tend to be bearish (hmm maybe this might be a good reason to go contrarian).

If one were to look at volume on the higher high on Friday, it coincides with the downward trend of volume (see chart 3). So it is possible that we will see another down day earlier in this week.

Reading the candle on Friday last week tends to be slightly bullish/neutral as upper and lower shadows are about equal and the open and close are not considerably far apart (though skewed towards the bulls).

It would seem that we have a conflict of perceived sentiment (the media) and the technical sentiment.

Another Key level that I will be looking at is very short term support at 835. If prices get a good strong close below this, I will have to re-analyze to see the possibility of a trend change away from this bear market rally.

I would like to cite chart 4 as possible evidence for a continuation in the short term for a bullish argument. I do not think that the BB is a good indicator for trend changes however it can be used to indicate a continuation of a general trend. Prices at the close of the week are not as near the upper 2nd BB as price levels that lead to trend changes. This may indicate more room for prices to get closer to the upper 2nd BB>

In addition,

Technical Summary:

Overall, given the fact that:

1. Volume maybe weaker with higher highs, I see further movement in high prices as there is room on the RSI to be a bit more oversold.
2. Trend channel shows more room to narrow further.
3. short term support on 50 SMA (the 50 SMA crossing under prices in late march)
4. a possible strong break on 870 resistence

It is possible we will see another up week. Overall, I do have to say though that this bear market rally is showing many indications that it is loosing its steam. Serious consideration must be made here since if indeed week 7 of this bear market rally is and up week, prices will definitely have to close above 870, which means the speed at which 877 is reached must also be considered.

As is, as long as 835 support holds this week, there is reason to believe that week 7 will be an up week, however if prices can not get a strong close above 877, I would be more bearish for week 8.

Fundamental semi bottom up approach:

Looking to Table 1.

It looks as if earnings are coming in to support the fundamentals for this bear market rally. Many of the sectors of the S&P500 are continued to be bullish (even the worst of them all the "financial sector" is bullish). This would give support to this week being an up week.

The only risk to this fundamental evidence is the semi-uncertain sentiment. Sentiment being undecided may drag the S&P500 lower as the fundamentals from the economy may not be ignored anymore. Looking at the economic calendar for this week it is very possible that if sentiment really is uncertain that some economic reports will move markets. For example, if jobless claims comes in lower with uncertain sentiment, its possible to drag the S&P500 lower. However, if sentiment is not uncertain the market will ignore this economic data as it has done over the past few weeks, which would indicate possible week 8 to be an up week as well.


Summary and Forecast:

All in all the short term trend (this week) will probably allow for further moves to the upside ending in an up week (this is my expectations as well), as with confirmation from some technical indicators given in the technical summary above. I will have to say perceived sentiment, that could possibly discount poor economic data would support this.

If prices can close strongly above resistance of 877, I would expect higher highs and higher lows into may (though I may want to re-evaluate resistance levels and possible other factors that would allow for a trend change between resistance levels).

As I said in my analysis I expect prices to dip early in the week (Wednesday or before), and will be looking at 835 as a key support level to maintain bullish stance for this week.

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