S&P 500 Trend Analysis, Techies Holding the Market Back

By: Piazzi

Early Friday, futures seemed like all the rage in the low volume hours, pumping it ahead of retail numbers. After the numbers, techies took a good dump and that kept a damper on S&P for the day – Party Poopers!

There is a potential Inv H&S on the chart. We’ll see.

Despite the early drop of the techies, S&P held its ground and didn’t budge. Nothing changed and the 1080-1110 range dragged yet another day

As long as index holds within this range, it has a chance of gathering energy to launch another attempt for a break to the upside.

The weekly picture has remained the same

Still knocking at the 2007 downtrend line and needing that extra bid required to push it through. If we break to the upside, pay attention to daily volume and breadth of the breakout, and how the whole thing (price, momentum, volume, breadth) behaves in the days after the breakout.

Friday’s volume was below average. Breadth was good

On Dec 5, I pointed to the number of new highs as a positive development. That gauge is still doing well. In addition, A/D line finally broke to the upside and recorded a new high.

Both McClellan Oscillator and the Summation Index recovered a bit on Friday

Overall, the breadth picture has shifted from neutral-to-negative to neutral-to-positive. That is nothing special in the upper half of a range that has been in effect for more than a month. It gives a launching pad to a break above the range and will be supportive if the breakout happens, but the breakout has to happen

Late October, we were studying the cyclical momentum of the index (CCurve) as it was showing signs of weakness.

 
Late November, CCurve started to turn up and I said that the peak after that turn would be important. That peak came higher than its predecessor. Now, CCurve is turning up again from a low that is higher than the prior low. This suggests that another momentum cycle may be forming to the upside. It is only a suggestion but, given the improving breadth, and the inability of the bears to cause damage, I’d rather give the bulls the benefit of the doubt – it is still their market.

Something very interesting is happening with the bond ETFs that I follow. Before looking at them, let me emphasize that, to me, at this point, all debt is junk regardless of who has issued the debt or what rating is plastered on its face.

Government bond ETF, TLT, has been very weak

The so-called high quality corporate bond ETF, QLD, has seen a few days of selling on high volume.

Notice that it ran into sellers at the same level as it did late September

The lower quality bond ETF, HYG, on the other hand has been doing well in terms of price, but not in terms of volume

There seems to have been a shift is resilience from the supposed quality of the treasury ETF to the lower end of corporate ETFs. If, and that’s a big if, this is a renewed appetite for risk, it is coming after 8 months of a market rally. Short term, it is in line with slightly improving breadth and the turning momentum cycle mentioned above. Longer term, it may, I, emphasize, may be setting the stage for a final run and a distribution top – definitely something to keep an eye on.

Let’s Wrap UP:

Index bounced from the lower edge of the 1080-1110 range and is poised to test the top of the range again.

We are entering a period of seasonal strength that has seen many Santa Clause rallies in the past

In June, index looked heading for a good drop, or correction, but it turned around without giving much and rallied. In November, Index looked very weak internally and cyclically, it looked ready to break, but it recovered without giving much. It has been my proposition for months that the bears of the last drop (before March) have been little significance to the market action (other than providing timely squeezes for rallies), and I think they are totally out of the game at this point. Market needs new bears with capital and conviction. So, the question is if those who can short with capital and conviction did not do so in July or November, why would they aggressively sell here in December with Santa and year-end-bonuses on the horizon?

This week is an Option expiration week. We will also be treated to another round of Fed meetings and announcements. So, I expect quite a bit of craziness, and bouts of price gymnastics. My plans are just to focus on the ongoing range and ignore everything else.

If I wanted to short, I could do so here that the risk is low (risk is a a break and close above the range), perhaps using options 2-3 months out.

Support is 1090, 1061 (a tough pivot for the bears so far) and 1041. Resistance is 1107 (a tough pivot for the bulls so far), and 1133

There is no short term trend on S&P, just a choppy lateral move. Mid-term trend is up. Long term trend is down.

Have a Nice Day!

By Piazzi

http://markettime.blogspot.com/

I am a self taught market participant with more than 12 years of managing my own money. My main approach is to study macro level conditions affecting the markets, and then use technical analysis to either find opportunities or stay out of trouble. Staying out of trouble (a.k.a Loss) is more important to me than making profits. In addition to my self studies of the markets, I have studied Objective Elliott Wave (OEW) under tutorship of Tony Caldaro.

© 2009 Copyright Piazzi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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