Friday, July 2, 2010

Technical Analysis: SPX

Technical Analysis Summary:
-The SPX recently broke the neckline of a head and shoulder pattern
-This indicates that the stock could potentially go down the same length as the distance between the neckline to the head
-Therefore, if the SPX follows a head and shoulder reversal pattern, the price target should be between 900-925 for about the next two months
-The SPX is currently below both the 50-day MA and 200-day MA
-Furthermore, the 50-day MA is on the brink of crossing the 200-day MA, which provides further evidence that the SPX is heading down (note: the 50 MA has stayed above the 200 MA since the end of June 2009, so this crossing is significant)
-I would wait a day or two to see how the trend plays out. If the SPX does not make gains, then I would enter a short position.
-One way to hold a short position on the SPX is to hold the ProShares UltraPro Short S&P 500 ETF (SPXU)
-This ETF is triple leveraged, which could be useful if the SPX does not decline as much as the head and shoulders reversal pattern indicates
-Low put/call ratios in the past month for this ETF hint that investors are expecting it to rise

ProShares UltraPro Short S&P 500 ETF (NYSE: SPXU):

As of 7/1/10:
Current Price: 39.68
52 week range: 26.27 – 86.01
Average volume: 7.77M
Market cap: 333.31M
Shares: 8.4M

June 30: 328 put and 1,022 call contracts à 0.32 put/call ratio
June 29: 412 put & 1,281 call à 0.32 put/call ratio
June 4: 106 put & 1,266 call à .08 put/call ratio

From a purely technical standpoint, the SPX looks like it is positioned for a decline. To be on the safe side, I would wait 1-2 days to see how the market plays out. If the SPX cannot produce gains within the upcoming days, then I would enter a short position. Ideally, I would hold the short position for about two months. However, with uncertain economic conditions, I would monitor my position from day to day and be ready to exit it if conditions are not working in my favor.

Daniel A.
Summer Analyst
Analyze Capital LLC


  1. Excellent Post sir. I always appreciate learning about new ETFs. Seems to me like your technical analysis skills are improving quite nicely.

  2. Excellent post, I expect a follow up on performance review/analysis. I think both our reviews maybe similar as we share a similar view.


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