Market Matters, SPX as of Market Close 02/01/2010 by Scott McCormick, CMT
Monday’s market bounce was a nice relief to the recent onslaught of selling that began on January 20th. Friday’s low of 1071.59 managed to punch through the 61.8% retracement level of the November to January rally at 1075.62, but as of the close on 02/01/2010 the SPX moved back above this level and spent most of the day trading in the lower end of the consolidation range from November and early December.
As annotated in the chart below the SPX managed to break above its minor downtrend line beginning at the high on January 19th. Note that the momentum as noted by the two trend lines has slowed, and this is confirmed by the “breaking” of the two trend lines. However, the minor down trend has not reversed just yet. A needed higher high and higher low would need to be made. If the SPX were to trade out above the high from Friday’s session at 1096.45 it would signal the potential beginning of this process. Evidence on the daily chart and the weekly charts support this event allowing the bulls to step back in once more.
As mentioned in a prior blog the intermediate trend as illustrated by the weekly chart shows a “breaking” of the intermediate trend on both the weekly and daily charts. But just like the “minor” downtrend has not been reversed, nor has the intermediate uptrend. The “peak-trough” progression has not demonstrated a reversal of the intermediate trend, which lends credence to the bullish case; at least in the short term. In addition to the SPX bouncing of the 61.8% retracement level of the November 2009 to January 2010 rally, the SPX is looking relatively oversold on the Daily and Weekly charts according to the 14 and 5 period Slow Stochastic respectively. Another “participation” or “breadth” gauge I watch to identify “intermediate” troughs in the market is the “NYSE Percent of Stocks Above 50 Day Average.” On Friday this gauge closed near, but not below, a level that would be considered oversold, a level similar to those seen during the last two “intermediate” troughs in July and November of 2009. A key trait to this gauge is that it tends to trough every four months, at least for the last two years. So, if this low in late January and early February represents an “intermediate” low the SPX may move higher, and rally for another 2-3 months.
For now, the indicators are indicating that the SPX may be at a “low” in the over cyclical bull market that has been in place for nearly a year. Levels that should be watched in the short term would be Friday’s low of 1071, with the next target below that at 1055. From an intermediate perspective, if the market moved below 1030 a reversal of the intermediate trend may be beginning. On the upside, if the SPX manages to break above the 1096 level, then it would not be inconceivable that the market would retest the highs of 1150. Finally, if the SPX moves higher through 1150 then 1220 is the next target, and beyond that 1350-1375.
