June 13, 2009 - SP500 technicals

The S&P500 has, unbelievably, rallied over 40% since the March lows. This rally which started as a sharp 'V' shape rebound off the low has slowed to a more sustainable uptrend. The line drawn below serves as a loose support line in this uptrend.

There are many people who missed this uptrend and have been waiting for a downtrend to buy-in. The hopes for a much anticipated "buy-in" downturn dissipates everyday as the S&P rallies to new 2009 highs.

Why such a rally? Well, the "this-is-the-end-of-capitalism" fears have subsided and cautious optimism has return to the market, supported by better than expected economic stats. BUT is everything better? Have all the problems gone away? or is this the media at play?!

Let's look at the technical:



If the uptrend line is extended all the way to the right side of the chart, the price is still above it indicating the continuation of the rally. However, there are technical signs that the bulls may be running out of steam here. Looking at the recent price action, the S&P is moving in a very tight range, with lower than average volume - unable to penetrate the 950 level and close above it. The declining trend in MACD while the price traces new highs is a bearish sign, and a technical sign that bulls are losing power at these levels.

However, these are not signs that we're going to crash from here. There are 3 support lines: firstly, the support of trend line at around 925, then the 50day SMA at 911, and the 200day SMA at around 890. The 50day and 200day moving averages are very meaningful to traders, and have to be broken to the downside before another big down wave.

This week is option expiry week, let's see how it goes.....