Wednesday, March 24, 2010

SPX Technical Update: March 24, 2010

** Skip to bottom for Summary and Conclusions

So I was completely wrong on my last call for the short term. I was bearish from two weeks ago.


Looking back I can pick out a few flaws from my last analysis. I should have given more weight on the weekly time frame.

I should have realized that on the daily chart the RSI could remain extended for a weekly time frame which actually occurred, there was evidence of this on the weekly chart, with prices showing plenty of upward movement to 1220+ (via 200 sma resistance considerable above current price levels). Though I am bullish to 1220+, I would prefer to see a healthy 5% correct to levels of 1120 from current highs to be certain of a continued bull trend to 1220+ or beyond.

I based my last short term bearish thesis on the daily chart, as you see that 1150 resistance level was blown right out of the water as the RSI remained extended. It is only now, that MACD may be seeing a momentum reversal. To those following, always keep in mind of the lagged nature of these slow moving indicators. To be a bit more precise perhaps I may try to start experimenting with exponential indicators.

Looking back to the weekly chart, we definitely are seeing strong bearish development around the 1220 level. 200 SMA resistance coincides with a 70 RSI topping out. The MACD alludes to a very interesting question for the current trend. If prices do top out at 1220, will we see another 10% drop? which barely budged the MACD or will this be a full out reversal where the MACD will work out its pent up downward momentum over the course of a few months returning to center-line balance 0. If this is the case, a true test of the uptrend will be when prices test 1030 support.

Other bearish confirmation seen is in the consolidation of mild volume, I'm sure BB analysis will point to price consideration which will confirm strong bull trend or a reversal to the downside (either or).


Time Frames:

I will be bullish after a decent 5% correction in the second quarter (perhaps bearish for rest of march - making march half bull then half bear). I will be bullish to levels of 1220+, which I believe can be achieved within the first two months of the second quarter.

Once 1220 resistance holds we should see at least a month of price pull backs 5-10%+ (during the last month of the second quarter). "IF" I am completely wrong about this resistance level like last time (this time I doubt it though). Hell, I'll be darn sure to see 1300+ levels, which sounds insane already...



All in all, I will wait for that correction in the SPX, and be bullish to 1220+ which I think will be achieved within the first two months of second quarter. Though currently to get there I think a 5% correction to 1120 is needed for current uptrend to remain healthy (possibly a good entry point if one is bullish to higher than 1220+). So for next two weeks ill be looking for a continued pullback. I will keep posted on this.

Though with past movements and relative strength vs world equity markets, a lighter pull back is feasible as US seems to be "it" place to be. Though, I'm a bit of a skeptic about the legitimacy of such ideas, considering the weakness of our labor markets still. But compared to what Europe is going through I guess the US does greener on the other side for sure.



I have to change my time frames and target levels considering how bullish the SPX has been.

This is what I said last time:


"Apologies for confusing rhetoric:

1-2 weeks out: Bearish
4 weeks and longer: Bullish

In other words bearish for most of March but by mid to end of second quarter I will be bullish on SPX to the 1200 levels. "


Since the bull's have moved faster than my expectations, I'm now bearish for the time that I said I would be bullish from my last post. And certainly seeing 1200+ levels is more feasible sooner than later.

1. bearish two weeks out (rest of march)
2. Beyond that as long as a lower high is made I will be bullish 2 months into the second quarter.


The key confirmation of a health 1200 level will be since with a decent correction that creates a higher low



Alexander LĂȘ
Managing Partner
Analyze Capital LLC

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