SPX Technical Analysis

Almost...

The SPX tried to give us exactly what we asked for but just couldn't quite pull it off. We did get a nice rally over 910 closing yesterday's opening gap and moving exactly to NL. Unfortunately, the obvious sell point at the gap and the fear of holding positions over the weekend caused too many to take profits at NL basically crashing the SPX into the close. One would expect a rally to lose momentum after closing a gap since its such an obvious place to sell. Unfortunately it was so obvious that the sellers just overwhelmed the buyers into the close.

Monday will be an interesting day. If we open gap down, I'll expect a retest of the lows with a good chance of them holding and a late day rally. If the market decides to go higher early we'll probably move back up to retest NL and may consolidate for a while between 870 and 910.

If NL can be overcome, I think we'll move up to NL2 immediately, then correct back to NL which will setup another Head-and-shoulders Bottom (HSB) to be confirmed when NL2 is taken out. The cycle would probably continue at NL3 as the year-end rally unfolds.

On the other hand, if the 820 low cannot hold, the whole bottom building process will be forced to start over at lower levels probably around 750. At this point I'm committed to this position and will ride out a 12% drop from my entry to 750. considering the volatility in this market, 12% can be recovered in just a couple days. I refuse to get whipsawed.

Considering the recent break of the well-defined R1 and the season, my brain tells me our bias should be up for a while. But admittedly this market is abnormal and my emotions (like everyones) are creating fear of that there's more downside. We all know that trading with the crowd on emotion is a guaranteed loser over the long haul so I'm hoping my brain is correct at this point.

Sincerely,
Steve Hunter, ULTRA Financial Systems LLC