The market has reached an interesting point, which means it is time to look at this market again. In previous analysis I mentioned a target of 1000, and 1020. The second profit target should have actually been 1025. My bad. Either way, both were exceeded slightly and we have had a close at 1030-1031. Therefore the profit target from the breakout of the range, which lasted from May through July, has been achieved.

Now it is time to see if this market has more steam. I am still skeptical of this rally. Fundamentals don’t seem to be matching up with the market, but that is why I am technical trader/analyst. The market is providing opportunities and we need to trade them no matter what our personal belief might be about what is happening.

From the chart you can see I put a small trend line on this last leg of the rally. This is not a critical trendline, but since it intersects the profit target area it is given a little more credibility. Being that we have exceeded the profit target, a point where we expect to start to see diminishing strength, if we drop back below that trendline it indicates we are a likely to experience at least a short-term reversal.

A rise and close above 1031 indicates another swing higher. IF that were to occur targets at 1065 and 1100.

Downside targets are 980, 950 and 920.

S&P 500 Daily Chart

~Cory Mitchell, CMT
Chief Market Strategist
Remember, failed breakouts are tradeable too!

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Here is an analysis video of the S&P 500 which looks at just how high this market can go.  Using Trade Triangles as well as chart patterns we can begin to zero in on what this market is likely to do.

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Title: How high will the S&P go?
http://www.ino.com/info/413/CD3784/&dp=0&l=0&campaignid=3

Cheers,

~Cory Mitchell, CMT
Chief Market Strategist

I don’t write about the stock market too much on this site anymore, unless  something big is about to happen.  And right now it is.  You can follow my updates on this unfolding market at http://www.darkpooltraders.com/vb/stock-tips/104-stock-market-breaks-trend-line-support.html (Great site by the way!  You can talk with me or other traders, post questions, have discussions in the chat rooms or in the forums.  Check it out!)

But I will give you the basic snapshot here:

We are resting right on the “savage support line.”  Why the “savage support line?”  Well, if there is a legitimate break of this level the fall likely take us down about 10% from current levels.  You can see the target area on the chart below.  How the market reacts off that target area will determine whether we bounce, in which case we have an amazing opportunity to buy into one of the lowest risk areas of a bull trend, or we realize the governments screwed the pouch and we are retesting March lows. But that is a bit down the road.

The pivotal level right now though is 880 on the s&p 500.  A break below will sends us towards our target.  This market is in a trading range so the breakout may not happen tomorrow, but it may.  This is a big level and we closed right on it, so I owed it to you to least make you aware of it.

S&P 500 Daily - Free Stock Charts

Cory Mitchell, CMT
Chief Market Strategist
Remember, failed breakouts are tradeable too!

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I wanted to bring up a few things about the current problems in the stock market. The near term target is now 6000 (see my previous posts in the Market Blog category).  If we pan out to a very long term view of the indexes, both the S&P (1950-now) and the Dow (1930-now) we see the major trends both coming in at around 4000 on the Dow and 400 on the S&P.

Do I think we will go that low?  Well, I am not going to make that call.  But that is the very long term trend line support.  And just like the Nikkei traders, discussed below, who never thought they would be selling at current levels, the possibility is very real that current market participants will be selling at seemingly illogical levels in the not too far future.

If we look at the Nikkei, that market has been falling for the last 19 years.  From a high of around 40,000 in 1990 to around 7,500 currently!  One of the world’s “Super Powers.”  Many initiatives were thrown at that market, and they have failed.

The current initiatives thrown at the markets are also failing.  It was pointed out that banks being bailed out by these plans are viewed as high risk, and who wants to invest or put their money in a high risk bank?  These banks that are being bailed are going to find it very difficult to raise funding.  So if the purpose of bailing a bank out is to help stabilize it, and the very act of bailing it out gives the perception of instability, how can this work?

The point is, in bear markets, when things seem they can’t get any worse, they often do.  And then when everyone has given up the market will rally.  But currently there are a lot of people saying “buy, buy, buy, great deals, great deals!” as the market continues to make new lows.

I don’t personally like sentiment indicators, but I do think that in a strong downtrend like this, the bottom will come only when everyone  backs off and says “no more bailouts, and no more buying”.  At that point the market can see the impact of what has been done, it will have been priced in (for lack of a better term – the whole “priced in” theory is a little misleading) AND THEN buyers will step in in force because they actually have some concept of what values are.  The more money that is thrown at this problem, the harder is to gauge the impact, and in uncertain times the masses aren’t going to step in when the government and Fed are themselves showing panic.

I am not out to fear monger or make people worry even more than they already are about their financial future.  But living in this moment we have to look at the current market, and all I can say, as I have been saying for over a year now, DO NOT BUY, yet.  If there are deals today, and I am sure there are, in this market they will still be there in a little while.  No point jumping into a fire to grab gold nuggets, when you can simply wait till the fire goes out.

~Cory Mitchell

The other day I talked about how the S&P 500 had not broken below its lows.  Today it did, confirming the down swing we have already seen from the Dow Jones Index.  Targets for the downswing are 6000 of the Dow and 600 for the S&P.  If even further confirmation is need the German DAX as the Aussie ASX both slipped below support below along with many other indexes.  Money flow indicators also slipped negative and RSI is still in a bearish range.

~Cory Mitchell

I have talked about the Dow Jones Index going to 6000 for quite some time.  From the first time we tried to break down to this level we saw a rally, but that rally was stifled on multiple attempts to break above 9000 with any conviction.  The market again broke lower and has now failed on two small rallies to break above 8400.

Friday saw the Dow break below the November lows signaling the market is still very wary of current economic conditions.  The target for this breakout is 6000 (this is calculated by taking the range 9000-7500=1500, minus the breakout point which is 7500-1500=6000).  This target is medium term target and could take place over a couple of weeks or several months.

In this market environment a V-bottom is unlikely.  A V-bottom is where prices drop rapidly and then recover very quickly.  Based on the charts it may be difficult for the markets to see a quick recovery because there is simply so much resistance.  In other words, expect the market to remain in the 6000-8500 range for quite some time.  Trades if made should be kept short term.  Long-term investing is not yet required until we see some sort of definitive move higher.

There is some upside resistance at 8000, but more significant resistance to a move higher will be seen at 8400, 9100, 9600, 9800, 10 000.  A move above 9100 in current conditions is unlikely.

Do We Have Confirmation?

The break below previous lows has not been confirmed as of yet by the S&P 500.   If the Dow Jones Index is in fact due for another leg lower to 6000, the S&P 500 will also experience another leg lower.  If the S&P does not break its Nov. lows of 750 it would signal a divergence and that the Dow breakout is false.  Currently the S&P sits at 770.

Market Confidence

The market is unlikely to make any sustained move higher until confidence is restored in the markets.  This could take some time.  During times such as these people tend to horde their money which causes further lack of confidence because private investments and spending fall creating a further decline in jobs.  This creates less tax revenue and means that governments need to dip further into coffers which are empty to begin with.  Digging into money that was not there in the first place is what got us into this mess in the first place.

The market needs to stabilize naturally.  Government expenditures and bailouts are not likely to work as it is equivalent to trying to push a wet noodle – it simply crumples.  The current problems are built on long term cheap money and a separation from conservative investment ideologies.  Investors, business and government has become to focused on short term gains (leave this to day traders – but governments, business and investors are not day traders and should not be acting as such) and now the financial markets are paying the price. Of course this last part is just an opinion and my view of the situation.

The SPY rallied back somewhat on Wednesday to close at 84.05, up 3.48.

Here are the levels to watch on Thursday.

Support Levels:

83.50, 82.85, 82.50, 82.10, 81.75, 81.15, 80.45

Resistance Levels:

84.25, 84.50, 84.75, 85.30, 85.55, 85.75, 86, 86.35, 86.50, 86.75, 87.50

We broke below major support on Tuesday.  The SPY finished down 4.44 to close at 80.57.  The only support below this level are the levels back from Nov. 20 and 21.  The low from those two days is 74.35.  If we fail to rally over the next couple of days, this low level is likely to be tested.  This is applicable to short and longer term traders.

Here are a few levels to watch on Wed.  There will be only a few major support levels listed due to the fact the only support levels are from some time ago.

Support Levels:

80,  79,  78,  77.50,  75,  74.55,  74.30

Resistance Levels:

80.75,  81.35,  81.65,  82.10,  82.30,  82.75,  83,  83.30,  83.45,  84.50,  84.75