Is it too early to write the obituary for the stock market?

hrinvestor

Jun 30, 2010: 3:07 PM CST
Is it too early to write the obituary for the stock market?

Today the S&P 500 closed under 1,040 – the major line in the sand between bulls and bears.

Let’s take a quick look at this development and why this level is so important to monitor – we’re all watching it.

The Break:

.

On the S&P 500, the key level of final support in the rally that began March 2009 rested at 1,040.

Traders/Investors tested (supported) this level four key times, starting with the February 2010 low and moving to the two successful tests in May and June 2010… which gave way to today’s failure for support to hold.

I heard a great quote on CNBC yesterday referring to this level:

“The greater authority of a price level, the more authoriative the break.”

What that means is that everyone from amateur chartists to professional trading experts referenced the 1,040 level as a very important price level to monitor on their charts.

Today, that level broke definitively.

Let’s pull back our perspective to see the importance of this reference level.

First, the S&P 500:



You can see that this support zone goes beyond the February 2010 low – stretching back to serve as support in October and November 2009 as well.

There is no further support on any timeframe for the market in terms of moving averages.

Let’s see the Monthly Chart:



Price officially closed – for the first time I might add – under the 200 month SMA, and because today is the last day of the month, this break and close is now official and permanent on the chart.

The 200 month SMA for the S&P 500 rests currently at 1,048.

From a classical definition, today officially marks the birth of a new downtrend in the market using all metrics available.

1.  Price has formed a series of lower lows and lower highs
2.  Price is under the 20 and 50 EMAs on all timeframes
3.  The daily EMA structure has taken on the most bearish orientation possible
4.  Price has taken out a significant final support line

For reference, the key final support levels to watch in other indexes include:

Dow Jones:  9,800 (today’s close was 9,774)
NASDAQ:  2,125 (today’s close was 2,109)

There is one caveat to note, just to be safe from a ‘cover all angles’ basis.

We had a similar situation in July 2009 where the market broke under an important key ‘line in the sand’ at the 875 level, which officially broke down from a clear head and shoulders pattern.

The break failed horribly and gave rise to a new bull phase that spanned from July 2009 to April 2010.

The difference?  We did not CLOSE under that reference level as we did here today.

The reference is 1,040 – as long as we are under that level, technical analysts must officially declare the market in a downtrend.

In the event we break and close back above 1,040, we can expect a massive rally similar to that of July 2009 due to “Popped Stops” from all the investors and traders who liquidated and/or shorted the market while it was under 1,040.

Barring that potential – of a close back above 1,040 in the next few days or weeks – we can expect lower index and stock prices ahead, with a minimal likely target being the aforementioned July lows near the 875 level.

sooners

回复 1# hrinvestor


   

usamonkey

hhli3

回复 1# hrinvestor