Wednesday, October 7, 2009

SPX Daily Market Commentary - 10.07.09 -Technical Preview

The Bullish Picture:

  • Bullish Pattern formation of higher highs and higher lows since the July Rally

  • Bullish RSI behavior confirmation of staying above > 50 since July

  • MACD longer cross over shorter EMA (exponential moving average) --> bullish momentum reversal

  • Bullish Positive divergence with down-trending MACD vs up-trending price movements.

  • Support at 1020

  • Bearish Evidence - Weakening full out bull trend:

  • MACD center line balance > 1 since July --> sustained trend less likely

  • Resistance at 1070

  • Late Sept RSI pierced below 50 (maybe whipsaw), and resistance at 1075 would coincide with RSI @ 70 topping out.

  • Bullish thesis is lacking volume confirmation


There is enough bullish evidence to confidently say prices will return to 1070, if true support was found at 1020. A few posts ago I said I would comfortable if markets fell to 1010 which would give a stronger momentum push back up to resistance. At this moment my call for 1010 support seems to be wrong and the 2nd deviation BB may have acted for short term support at 1020. The bearish evidence may point to side ways trading as confirmed by light volume.

So how can we tell if 1070 will be broken? Watch for a series of higher highs and higher lows. One can also look to correlative inter-market evidence. E.G. A high correlation between Major pairs such as the EUR would mean weak dollar ==> strong equities. As my last post showed, I had a general weak dollar thesis. If this is the case, one could expect sideways trading lead to a break in resistance of 1070 eventually.

I would certainly back up a thesis with broad base market fundamentals. As in this volatile market, fundamentals can certainly trump technicals...

I will maintain short term bull on the S&P500 until 1070 and reassess


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