I charted the S&P 500 ($SPX) after the markets closed on Friday, 8/6/10, when it finished the week at 1,121.64.
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A couple of weeks ago I stated the SPX looked range bound. Check out the chart I posted then and notice where the SPX topped out this week, even before the jobs
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I charted the S&P 500 ($SPX) after the markets closed on Friday, 8/6/10, when it finished the week at 1,121.64.
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A couple of weeks ago I stated the SPX looked range bound. Check out the chart I posted then and notice where the SPX topped out this week, even before the jobs data did its damage on the index. I drew the line within two or three points of the top. If I had tilted the line a little (as I did in today’s chart) based on the May 7th intraday high as a starting point I would’ve had the top dead on. Enough bragging about that, I was due for another good call and that line might not have much longer to last based on the way the S&P recovered Friday afternoon.
The July jobs report looked like it would completely ruin the day for the bulls as the SPX came crumbling down beneath its 200 day moving average in the morning, but the bulls weren’t so quick to quit as they found footing and pushed the index back above the 200 day moving average before the close, cutting its losses by more than 2/3. We might have been due for this retreat based on resistance, but that doesn’t mean it’s going to last. What’s going to be most interesting to watch is the trend line of higher lows that started back on July 1st. For five weeks that line has been solid support as the S&P moved higher. Now that resistance at the top of the trading range proved intact still and the 200 day moving average broke intraday, the trend line will have a true test. If it holds support (as it did on Friday) and keeps the index back above its 200 day moving average we could see this rally still has legs. That’s a tall order though after the five week rally we’ve already put in the books.
We’re right at the turning point for either a move lower or breaking out of this aging trading channel. I actually started writing this post mid-day on Friday and had to erase most of it because I had started to dismiss the rally’s chances of lasting. Now I’m starting to think there’s another trading channel that has emerged. I drew two trend lines, one I mentioned above as the trend line of higher lows. Another is the trend line of higher highs that started as higher lows back in May. This trading channel has a slight enough slope to it that it could be one that sticks around for a while. It’s broad enough to allow for a good 3-4% mini-correction every now and then too. We won’t have to wait long to have our answer though. The first two trend lines I talked about are converging soon.
Volume on both positive and negative days has been weak. Maybe that’s just an end of the summer condition as vacations wind down, but it doesn’t help point an arrow in the right direction when we’re looking for some foreshadowing. Possibly one of the best technical indicators to foreshadow what’s to come is Williams %R and it’s still not giving into the bears. I even included the 56 day time period along with the usual 14 and 28. All three still show the rally is in good form. Reacting when all three of these periods broke above the oversold area would’ve been the ideal time to buy in and could’ve given you a nearly 10% gain in just two months. Waiting out this current sideways action to see which way %R suggests the market’s going to move could be keep to planning your next large trades.
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