Market Wrap Up 04/09

The $SPX closed up 0.67% to finish at 1194, as we continue to drift higher towards our seemingly inevitable rendezvous with 1220.  Because it is a Friday, and I have the rest of the weekend to post individual setups for you, I thought I would spend the rest of this post looking at the market on multiple time frames. Let’s first take a look at the updated daily chart.

To keep it simple, that is a very healthy daily chart. We are in a clearly defined uptrend and testing the lower end of the trend line. We are keeping a relatively close relationship to the 20 day moving average as well.  As coincidence would have it, the upper end of the trend line intersects with the July 2008 resistance, which is an area that I have mentioned is significant.

Let’s look at the weekly chart now, for reference.

I did not choose that 1220 area arbitrarily.  Unlike other chart guys in the “twitterverse,” I do not start with a thesis first and then cherry pick whatever facts I need to prove it.  Rather, I look at the charts and objectively analyze them.  The reason why I believe the 1220 area is so important is because it is the place where the most amount of longs got trapped before the final crash in the fall of 2008.  Recall, the rally in the summer of 2008 suckered in many bulls who believed that the Fannie/Freddie bailout was THE bottom. Obviously, they were disastrously wrong.  It was not just a few Larry Kudlow-like perma bulls who were bullish either.  Respectable money managers like Ken Heebner were horribly wrong and had billions trapped in there.  So, I do expect some serious supply to come back on to the market around the 1220 zone, when those bulls are finally made whole again.

Now, let’s take a look at the monthly chart.  This chart reinforces the view that the 1220 zone should be an area that we will see soon, but will also be a place that will represent some tough resistance. Note how significant that level was in 2005 and 2006.

So, I hope you see the importance of letting the charts lead you to a thesis, rather than the other way around.  I spent a considerable amount of time studying each of these time frames before arriving at the notion that the 1220 area ought to be a place to seriously reduce longs, and to even start looking at the bearish case.

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