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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).
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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.
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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.
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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.
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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.
Thanks Chess. When you are looking at support levels do you just look for the recent lows?
Not just that. Looking at prior resistance as well. I look at a bunch of factors, but for the sake of clarity for my readers I am trying to keep it simple.
That’s fair. I guess what I’m trying to learn how to determine the resistance line. On the Russell2k and Nasdaq chart I can see the resistance line. FCX not so much. If you don’t mind could you please elaborate using FCX as an example?
Thanks
Sure.
Look back to 2008. Once the stock lost the $60 level, it literally crashed. It had been basing just above $60 for a while, but that zone represented a sort of line in the sand. Maybe that is a little too nitpicky, but what I am looking at the most is the summer of 2009.
The $60 area was the first place that the stock ran into trouble after rallying hard off of its bottom. it took many weeks to recover and try again. But it failed in July, and then churned above it in August before finally breaking out in the fall.
Price has memory. What I am trying to say is that if this key zone can firm up and be a support level, yet again, it will be a strong line in the sand that will invigorate bulls and drive away bears. If it fails, then all of the people who bought it at this price level last summer will now be down on their investments, after seeing a nice run up. Many are likely to see to try to avoid turning a big winner into a big loser, and that will only accelerate the selling pressure.
I was going to discuss this in a forum inside The PPT but this seems like a good place to make a note re; Moving Averages and the potential “Dead Cross”. If you count back 50 days and 200 days, and then count ahead and log the next 10 days from each…those are the days(some are quite significant down days) that will “drop off” of the MA’s calculation(how it’s drawn) over the following 10 trading sessions. Now, assuming we get any sort of Sideways to Up market bounce(as per Fly’s O/S indicator inside the PPT that we all hold dear to our trading hearts), then one could take probability that the days being dropped from these averages could lead to plot a course on the MA’s that does not actually lead to a “dead cross”…Food for thought
Also, one must remember that Moving Averages are only good trading tools during trending markets, so if we’ve fallen out of trend(as this “dead cross” would suggest if it does indeed happen) then you need something new for your blogpost images @Chess
True. Good points. Thanks GET.
Great work and great comments. This tab will hold up well when the old man goes on vacation LOL
Thanks, Bernie–weren’t you just on vacation yourself?
Did the 200 DMA turn downward today Chess? If so, then the death cross analysis link above suggests further down is more likely course. Just seems like there is so much bad news out there, and more everyday, that the market is headed lower and may not even bounce. Europe is pulling back but we are still trying to spend our way out if it which will only exacerbate everything. Now Spain and Jobs report on Friday. YECH!
GREAT POINT. It went down .10 from yesterday. I just saw that. It may very well turn up again, so I don’t want to get crazy bearish just yet. But it is crucial to monitor it. Thanks for raising that point!
Thanks Chess. You have one of the best tabs iBC has seen in a while (besides when chuck was King of the peanut gallery of course).
Thanks Bubbles. Yeah I heard Chuck was awesome, in an X rated kinda way.
GET & Chess – thanks for the great work. I enjoy following you guys and trying to learn from both of you.
Thanks for reading.
“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. ”
great call chess…i followed this idea this morning. did you put some dollars to work?
Thanks–did at the end of the day.
I just sold 60 percent of my SCO. I see oil further down, but if we do get that relief rally it may bounce. Besides I made 15 percent on the trade. I also bought a small amount of SNV. Rest in cash. I see further downside coming. I think we see 9000 or maybe even 8500. I will buy some in the 9500 range with a small hedge to protect. I’m up and I want to stay that way. The trend has been down this year and you might as well play that till it changes. I would rather pay up then try and call a bottom………good luck all.