MARKET WRAP UP 06/30/10
Today was yet another example of the kind of mass psychology that is at play when everyone is looking at the same thing. The discussion of the 1040 level on the S&P 500 acting as support had become so ubiquitous that it was only a matter of time before that price was violated. After being flat on thin volume for most of the day, stocks eventually gave way in the last hour to another bear rout, as the S&P 500 closed down 1.01% to 1030.
The intraday low today was actually 1028, which represented a slight breach of support from last Halloween, when 1029 was the intraday low on November 2, 2009. Beyond that level, 1019 was the intraday support from the lows of the early fall correction on October 2, 2009. Those levels also represented a great deal of resistance from late last summer as well. Thus, the 1019-1029 zone is likely to represent a less obvious, but also more valid, support level than 1040 had become in recent days.
Beyond those support levels, the bears also pushed us down through the lower end of the broad trading channel that had been forming over the past five weeks. As the updated and annotated daily chart of the S&P 500 illustrates, testing a support level can only hold for so long before it eventually gives way (see below).
Interestingly, the Nasdaq has yet to breach the lows from February of this year, as I indicate with the pink line in the chart seen below.
Moreover, it can be argued that the small caps are still making a series of high lows, as I indicate in the zoomed out daily chart with the pink line, seen below.
Now, objectively speaking, bulls will argue that these are bullish divergences, as the small caps and Nasdaq charts indicate that we have yet to see a major breakdown. Bears will argue that the S&P has already broken down, and that the Nasdaq and small caps are simply going to play catch up to the downside.
Personally, I believe that we are oversold and nearing a tradable rally. However, I have yet to put money to work supporting that idea. Adjusting my style for this market, I would be looking for a gap down tomorrow morning to buy. If we open sharply higher, or merely drift around like we did this morning, I may very well take a pass and stay in 100% cash.
Finally, let us take another look at my main tell for this market, $FCX. The weekly chart indicates just how significant this $59-$60 zone is, going back to last summer. As you can see with the pink line, this level was key resistance all throughout the summer of 2009, before the stock eventually broke out above it and ran to above $90 by January of this year. What is at issue now, is to confirm whether that prior resistance level can now be deemed a current key support zone, from which the stock can move higher. To convincingly break down below it would tell me that the S&P is eventually headed much lower.
NOTE: I have discussed the seemingly inevitable “death cross” (as I call it) coming in the S&P 500. “The Big Picture” blog, currently ranked #2 on iBankCoin’s list of the top finance blogs on the internet, has some great work out today–taken from another blog–on the historical statistics associated with performance after a death cross on the S&P. Check it out here.Comments »