Thursday, January 28, 2010
Thunderdome Back on Today
Shortly after my morning post the S&P accelerated lower to break beneath 1080 a couple times to which it rallied significantly later in the trading day. Again, Mr. Market is whispering in our ears that the 1080 level is very important. If you just look at the long term S&P daily chart you'll see the heavy support there the past few months. But more importantly you'll see that once that support gives out, there's nothing left to hold it up until the 1030 area. You can see in the above chart that the S&P rallied sharply after slightly breaking through 1080 a couple times, but the rally turned out to be a series of overlapping waves that were ferociously reversed late in the day. This suggests the rally was a correction. If so, the market should charge lower soon and break through 1080. A strong close beneath that level should confirm that wave  or B is complete, and that a large and power wave  or C is underway. The only thing that is not so encouraging for the bears is that today's internals were not as weak as I'd expect after seeing today's action, volatility (VIX) spiked only 2.6%, and volume was quite low; the characteristics of which are usually that of a B or 5th wave. Regardless of the short term ups and downs, I'm keeping my eye constantly on the bigger picture which I feel is firmly downward. I'm not playing every up and down move in the market, but I do plan to add to my short positions if a large rally ever occurs. We'll see. Watch 1080 in the S&P.
One other thing about the S&P I wanted to point out was that even though the index did not close beneath the all important 1080 level, it did make its lowest close during that consolidative period pack in late 2009. This action, combined with the actual slight break beneath 1080 intraday, creates a large wedge in the floor support at this level. This bullish support floor is wearing down, and it's just a matter of time before it caves in and the decline accelerates again.
The XLF financial sector ETF did what I thought it might do and bounce off the $14 level after closing almost right on it a couple days ago. Just as the 1080 level is important to the S&P, the $14 level is important for the XLF. I assume the outperformance to the upside in the XLF today was mainly because people know that bankers will benefit from having Bernanke continue to give them billions of our hard earned dollars at almost no interest. But that euphoria will fade soon as all signs point to this sector plummeting lower. Watch the $14 level; when that breaks down, so will the sector.
As for the GPB/USD, it did a huge reversal this morning but had little follow through, keeping it in a consolidative phase. I'm hesitant to move my stop down any lower because the pair may continue this up/down sideways action for a while, and I don't want to miss a break lower as it should be fast, fierce, and big. So my stop will remain 1.6295 for the foreseeable future.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.