Today was an interesting day. The S&P 500 Index closed @ 1284.94.
We saw timid buying pressure on the S&P 500 Index throughout most of the day. Then, at 2:00 p.m.(Eastern Standard Time), selling pressure kicked in. By the close of the day, prices were at the low of the day. This price action is very bearish because smart money (big institutions, pensions, hedge funds, etc.) tend to make their move at the end of the day. So, we can infer that Big Money was selling, not buying today.
The drop between 2:15 p.m. and 4:00 p.m was quite dramatic.
On a daily chart, several features caught my eye. First, the Relative Strength Index (RSI) is approaching an oversold condition on the daily chart. Second, the 13-day moving average has crossed the 50-day moving average. Many investors and traders will take this cross-over as a cue to either stay out of the market or to stay short. Third, today's drop within the last two hours of the trading day suggest lower prices are ahead. Fourth, the MACD lines clearly show that the trend remains down. There is no doubt whatsoever. This suggests 1284 will not hold for long as support in the market. Finally, today was the second day where both the red and black stochastic lines were below 20. If both lines remain below 20 or the oversold level at tomorrow's close, some traders would take this as a signal that the stochastics are embedded and a dramatic drop lies ahead.
Since I am out of the C Fund, it is easiest to stomach a market drop/smile.
If we pull back one level and look at a weekly chart for the S&P 500 Index, we can see several obvious support and resistance levels. Support lies at 1226.82 (50-day moving average) and 1165.71 (200-day moving average). Resistance lies at 1323.21.
What insights do these levels provide for investors and traders?
Consider the following notes:
1. Since we are in a down trend, one should look to sell on a market bounce. 1323 would be an ideal selling level. Markets don't have to bounce but they usually do in a down trend.
2. Since we are in a down trend,we should expect the market to bounce at a support level. The next support level is 1226.82 (50-day moving average). I would look for a bounce when the market reaches 1226 or so.
3. If there is no noticeable bounce at 1226, the last bounce of importance should be at 1167 or so. That would be the last opportunity in all probability to profit from a good rally.
Conclusion--My advice to enjoy the summer remains. If, by chance, these resistance or support levels should be hit, then one should act accordingly. I am more bearish right now than bullish for the reasons discussed earlier.
Wink
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