SPX Technical Analysis

Still Feeling Pretty Good About Today's Buy

The SPX closed right on support S1 at 852.3 meeting my sub 895 criteria. After selling out at 1300 on 08/28/08 and missing a 35% loss, I feel pretty good about taking this position.

As you can see in the chart above, SPX closes on the low for the day near S1 have soon resulted in big single day rallies (1-3 above). Hopefully, #4 will do the same.

Another reason to feel pretty confident is that there is an overhead gap on today's open that did not fill. I suspect that if the SPX can take out R2, the SPX will move to R1 almost filling the gap.

Yesterday opened with a downside gap and late in the day a rally almost closed it but not quite. That rally also kept me out of the market as the SPX was well above 895 at my decision point.

I would not be surprised to see a down open tomorrow possibly with a downside gap. Then a rally filling the opening gap and taking out R2. Then a late rally taking the SPX back up to R1 at 895 almost filling today's opening gap.

Lastly, today's low for the SPX was significantly unconfirmed by almost every technical indicator that exists including: B21, V21, OBVP, MACD, CCI, MCO, MCOS. Don't worry too much about what these indicators are exactly. The important thing is that this low occurred with far less downside momentum by every measure as compared to the previous low at this level.

Having said all that, tomorrow is a very important day. Anytime the market tests important support, it could fail and trigger a lot of selling regardless off all the evidence that points to the support holding. As with every time I've bought a low on support over the last 20 years, I'm nervous. It's impossible not to be.

Sincerely,
Steve Hunter, ULTRA Financial Systems LLC