An update and analysis of the S&P 500 chart

Back on Oct. 23rd I posted this chart and commentary about the S&P 500 and where it might be headed. I think a review of that post seems appropriate as not much has changed since then. Let's see the chart and here's what I wrote then.

"I have drawn 2 red lines and 1 blue line. As you can see with the red line labeled 1, that we have broken above this level this past week. The next challenge for the Bulls is to cross over the red line 2 which crosses the axis at 1240. If it crosses above 1240, then the obvious next resistance level is at 1265. The S&P 500 closed Friday at 1238. I can't guarantee that we won't go up to test the 1265 level, so you might want to entertain the possibility, depending on the news coming out of Europe, we could surge up this week and test it. If the news is mixed from Europe, we may stay between that narrow wedge between both red lines, between 1220 and 1240. But there will be a breakout soon in one direction or the other."

At this hour today, the S&P 500 is at 1246 and the chart has been updated below. Again, not much has changed. We are still below the 200 day Moving average and that line is slanting down.

Market commentary for Oct. 4th, 2011

Tuesday's charts are of a longer period than previous charts for a while. I have put together charts of the Dow, S&P and Russell 2000 each for 3 year periods. I have drawn a number of red lines showing where support is and where you can see we may be headed. First the charts and then some commentary:



The Dow broke below recent previous lows and while it barely is below those lows, the trend looks like we are going lower. The bottom of the Dow's range is 10,000, which is 655 points lower from where it closed today. We could just as easily climb above today's lows, but we should be going lower, as the news in Europe has not solved the Greek Debt crisis and Greece today said they did not reach their goals around there promised austerity targets they had committed to the EU. That was a major reason the markets ignored good news today regarding the ISM number which came in at a 51.6 reading against an expectation of only 50.0.

The S&P500 shows a larger drop against the previous lows and the Russell 2000 shows an even greater drop. By the way, Germany's DAX Index is also going lower as is the CAC40 and FTSE, but I didn't put up those charts today. News isn't mattering these days. Lowering ones risk is what is driving the world markets now!

Stock market direction? Nothing has really changed!

Since the beginning of August, when the stock market had its big drop based upon the announcement of the Fed that they were going to keep Interest rates low until 2013, nothing much has really changed. We have been in a tight range that does't feel so tight because of the high volatility. One week we are just below 11,000, wondering if we are going to hold support here or go lower and the next we are back up to 11,500 wondering if we can break much above this apparent resistance level. It has been worrisome for most investors but not for day traders. The best day traders are making some money, but the rest of us watch in disbelief.

I have compiled some 1 year charts below to reiterate and reenforce previous posts where I said we are in a tight range but now we are closer to a breakout, one direction or another. I have stated many times I believe this direction is lower, so no sense repeating much more than that.

This week Germany's Lower House of Parliament approved increasing the proposed EFSF (European Financial Stability Facility) expanding the euro-area rescue fund's fire power to stem the region's debt crisis. To read more about this Fund and the politics in Germany over this issue, click here. This seemed to move their stock market higher but as the week progressed you can see in the charts below, it pulled back.




You can see I have drawn red lines showing support levels and Blue lines showing resistance levels. You will also note that since the drop in August we have stayed below the 50 day moving average consistently. This line might be a good indicator to track market direction so that you are not fooled as we many during the Bear Trap so noted on a number of charts by the blue circle covering their mistaken purchases. Use these charts as a reminder of where we are and above all remember the Fed doesn't think we are going to get better until at least 2013!

This coming week on Friday, we will get the Unemployment rate for September. This could move markets. Also on Monday be watching for the ISM Index at 10:am EST or 7:00am PST. Expectations are for a reading of 50.5 and the previous month the number was 50.6. I expect the number to come in at 50.0 or less, given the lack of business activity there was in September. Earnings also will be front and center now for the next 4 weeks. You will be hearing about "beating expectations" by companies. Remember, these predictions were lowered last time so that beating these expectations should not be difficult.

Market comments for Sept. 29, 2011: Still in a tight range!

Initial Jobless Claims dropped this week to 391K, which was lower than expected. This data gave the market a boost in premarket. Also reported this morning was a revised GDP number for Q2. The final number reported GDP grew at 1.3%. Both pieces of data were better news than expected and traders are hoping to time the bottom of the market as many are venturing in the past few days. This stems form "hope" the EU has a plan for solving the sovereign debt problem for Greece and that their strategy will be a template for Italy should it be necessary. It's the same action Bernanke is taking, print more money.

A good friend of mine dropped me an email early this morning with an article from ZeroHedge worth reading. Here is the link. The article discusses Fed Chairman Bernanke's speech last night and his concerns about stemming deflation it seems at all costs. This is worth the read. The article is titled, "Goodbye Operation Twist, Hello QE X+1" and was written by Tyler Durden very early this morning.

Now that we recently retested Dow 11,000 and it held, even tough we went below 11,000 for a couple of days, it looks as though we are going to retest Dow 11,500 again for the 3rd time in several months. We seem to be more volatile lately, but we are still holding this tight range of between 11,000 and 11,500. Traders love the daily volatility, but long term investors don't and are looking for a guide to market direction.

UPDATE: 6:00am PST
Germany's lower House of Parliament has approved the expansion of the bailout fund needed for the sovereign debt crisis. Read the news by clicking here.

Market Outlook: Thursday March 25th and beyond (UPDATE)

Well we closed up for the day yesterday. A battle is going on between the Bulls and the Bears. Yesterday the Bulls won but it was touch and go for most of the day. We are in no mans land on the Dow and S&P 500 because it has not been determined if we are going up or going down yet, even though we closed up yesterday and back up over 800 on the S&P. The Put to Call ratio closed up yesterday to 0.86 from 0.76 on Tuesday and 0.70 on Monday.

Market is opening up but I tell you we can still go in any direction because the trend is not clear as I write this. The Weekly Jobless claims came in at 652,000 while the number of people getting weekly benefits rose to 5.5 Million recipients.

We still don't know if the banks will sell toxic assets and we won't for at least a month. So many are still in limbo as Geithner's toxic asset plan is based upon bank participation.

The auction yesterday for Treasury's did not go as well as hoped. This caused the market to drop mid-day. So skepticism remains strong and we have a less than enthusiastic investors which makes for a tight range on the Indexes. It looks like we will stay here for a while but as we approach the end of the quarter watch investors buy some bank stocks to dress up their portfolios because they moved up nicely from their lows and they want to show those having accounts with them that they owned those stocks during the quarter. It's all a game for show and after the end of the quarter they can and often sell some of these shares bought at quarters end.

I think a wise strategy is to have some cash right now and not be fully invested. When the trend becomes more clear then changes can be made to either buy stocks or raise more cash. But that's where I am currently.

UPDATE 9:45am PST

The Dow and the S&P 500 are clearly above the 50 day and now 60 day Moving average. The Dow is now at 7,839 and the S&P 500 is at 824.

UPDATE 3:00pm PST

I decided to sell my TZA at a loss today for $48.50. That was a big loss of $10/share. However my TNA shares remaining and SSO shares have made the loss in TZA as an insurance policy worth it.