I charted the S&P 500 ($SPX) after the markets closed on Friday, 8/20/10, when it finished the week at 1,071.69.
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The first thing I noticed when I looked at the S&P 500 chart this week was that even after what felt like a painful slide lower, it’s still trading within
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I charted the S&P 500 ($SPX) after the markets closed on Friday, 8/20/10, when it finished the week at 1,071.69.
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The first thing I noticed when I looked at the S&P 500 chart this week was that even after what felt like a painful slide lower, it’s still trading within the same trading channel that it’s been in for months. A lot of bears out there will scream for the reasoning that it’s going for a double dip now and although they could be correct, the chart doesn’t say give up yet. Until this trading channel breaks, there’s no reason to abandon ship completely yet. Lightening up when resistance hits on the upper limits (around 1,130) and reloading when support is found on the lower limits (around 1,040) is still the game that works. At some point that will stop being a winning strategy, but nobody can say with certainty when.
For the nearer term we could see another 30 points to the downside which is less than 3% from Friday’s closing levels unless we retest the lower low (around 1,010) from July instead of the May and June lows again. Going back down to test the July intraday lows would equal more than 5% to the downside from here. I drew two trend lines using lower highs and lower lows from the past few weeks. These lines are set to converge before either of the previous lows is reached. If we stick with the line of lower lows we’ll get there eventually, but will have broken the quick pace of decline from the past two weeks. If the trend line of lower lows breaks it could possibly be the sign of a minor capitulation as the rate of descent speeds up quicker than the past three weeks has allowed.
Longer term, it still comes back to the index is trading below its 200 day moving average and most of us view that as a bearish indicator worth respecting. Throw in the fact that the 50 day moving average and the 10 day both acted as resistance and the bears have the edge still. The longer the index stays below its moving average the quicker said moving average will decline giving lower resistance and a lower bar to hurdle when its time to reach for new highs. Williams %R has moved back to oversold for the 14 day period, but not yet for the 28 day period. While it’s still on the decline with room to move lower I give the edge to the bears on this indicator too. By the time the S&P 500 makes it down to test its previous lows from the past few months %R should be ready to indicate higher days are to come. Until then, there’s no reason to jump the gun and buy in again too soon.
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