June 29, 2009 - SP500 - Place Your Bets

Well we've had an interesting week. Following the post on June 23rd, bulls lost steam at the 950 level and the S&P500 fell - but to a very strong convergence of the 50day and 200day moving averages. There was support at these levels as we bounced off 890, however, not on the volume that I would have liked to see.


Volume is below average and even though the MACD has ticked up, it is still in a bearish pattern.
Now, let's take a look at a daily chart for SPY, which is the ETF that tracks the S&P500 on a one-to-one (non-leveraged) basis. The chart of SPY clearly shows the same price movements as the S&P500 and the 50day and 200day moving averages converge at the right side of the chart. (click on the chart for a larger view)


At the bottom portion of the chart the Call and Put option volumes are plotted. Notice anything interesting at the right side?
A very distinct spike is visible right before the place of convergence of the averages. A vertical line has been drawn to align the top of the call volume spike with that of the price chart.
At this point a lot of call options are exchanging hands. Buyers of the Calls are betting that the S&P500 will bounce off the averages and the sellers are taking the reverse side. The wheel spins... but who's placing these bets? Which side are the pros taking and which side are the sheep on?

Option volume is another important technical indicators that signals market sentiment and possible shifts. Even though volume alone does not tell us which way the tide will go, it does tell us that the market is taking sides and that there is a tide coming.......

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.....

June 1, 2009 - S&P500 technical analysis

It has been an incredible rally for the S&P500. With all the sceptisism and bad economic news, the fear has subsided and money is starting to flow back into the equity markets.

After a well supported rally to the upside a double bottom has formed on the S&P500 near the 880 level.

The following days will serve as an important test for the S&P500 as the 50 day and 200 day moving averages approach and price is squeezed between the two.

It does not make sense that the 200 day SMA be broken so easily and with light volume. I think that this break is a false upside breakout and we will come back to test the bottom of the double bottom in the 880 - 900 levels.

Only the future holds the answer.......