880 for the S&P 500 Was Here, with Bells on

S&P 880 is here - that's the line in the sand we've been discussing. I don't want to make too much of one day, and I'd expect some defense of this area even if there is a sustained period downward following, but this was the spot we refused to break below in May.

And while one day does not make for a "break" (see the action two weeks ago) we again broke the 200 day simple moving average. We quickly reversed out of that condition about 12 sessions ago, but you might be noticing these post 3:30 PM "mark ups" are farther in between and weaker in sustainability.

Where are all the "golden cross" (50 day moving average cross over the 200 day) fans of late? [remember that happened with a downward sloping 200 day moving average, unlike 2003's upward sloping - and it only happened in the simple moving averages. 2 strikes for "golden cross" fans]

And our leadership market, NASDAQ (read: technology) has underperformed again... and broke key support today on the close.

As reader Guy says, in the near term it would be fitting for the market to break key support levels, draw in the bears (who have been bloodied since March) before reversing up and breaking bears hearts (albeit temporarily), but as I stated last week and in this weekend's summary, the place to short with longer term plans in mind will be (a) a break below these key levels (875-885) or (b) on the next oversold bounce. I do believe the trend has now changed, but as I wrote in the weekly summary, I would be expecting a mid-week bounce after a test of S&P 880. Halfway correct so far.

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Now we need to study our Fibonnaci and decipher how much of the move from 666 to 950 (I'm rounding to keep it simple) on the S&P is supposed to be given back. That's 284 points of bull glory and bear pain.

1. 38.2% retrace = 108 points. S&P 950 - 108 = low S&P 840s
2. 50% retrace = 142 points. S&P 950 - 142 = low S&P 800s
3. 61.8% retrace = 175 points. S&P 950 - 175 = mid S&P 770s

The latter of the 3 would do a good job of getting people to give up on the stock market (duped again!), after being fooled by the green shoots (and CNBC pundits for the upteemth time), while creating a (wait for it) longer term reverse head and shoulders bottom (which is bullish). The latter of the 3 scenarios would also work great with my call for a return to S&P 750 (close enough for government work).

As I've been saying, a convenient 10% selloff so "all those who missed the first rally could jump on board" just seems too convenient. 10% down from 950 is just over S&P 850, so I could still be proven wrong on that point. I don't see any technical reason for "just over S&P 850" to be a place bulls make a stand either.

If all that above is gobligook to your ears, don't worry about it - it's basically just part of the now dominant "squiggly line analysis" that program traders of the HAL9000 variety use to tell us where the stock market should go. Remember computer trading is approaching 50% of all trades as of last week. Fundamentals are so 1990s.

If it all seems Greek to you (or Italian) just keep reading along and we'll update you along the way.

Leonardo of Pisa (c. 1170 – c. 1250), also known as Leonardo Pisano, Leonardo Bonacci, Leonardo Fibonacci, or, most commonly, simply Fibonacci, was an Italianmathematician, considered by some "the most talented mathematician of the Middle Ages".[1]

Comments

[Mad Hedge F...:]

Looks broken to me. ) If anyone is wondering what that foul odor is, it’s the sushi that hit the fan. Even the most obstinate, nay saying perma bulls now concede the head and shoulders is in on the S&P 500. That great barometer of global risk taking, the Euro/yen cross, didn’t just break key support at ¥132.50, it completely melted down to ¥128.00. Oil traders have had an epiphany, rediscovering fundamentals like wayward sinners finding a new religion, which, by the way, are terrible. So how did crude double in the face of a collapsing economy? Was it speculators? Was it Goldman Sachs? “Green shoots” have returned to being those pesky things you get dirt under your fingernails ripping out of your back yard. If I get any more negative I am going to have to change the name of this letter to the “Assisted Suicide Daily.” So I have to finish on an up note. I’m not in the Armageddon camp, which sees us going to new lows below Satan’s 666. I think 750-800 is more realistic. But then I was always the one to take the easy money. If you get another Lehman bankruptcy type event, you could see a real crash. For the last two years, the market has had an unceasingly ability to come up with these shocks.

Jul 08 02:25 PM

[predictorma...:]

So what you're saying is that short term the market could go up.... or it could (well maybe you're saying should) go down.

It's getting so that even technical analysis is not really telling us anything.

Jul 09 09:15 AM

[TeresaE:]

Following the great crash in '29, the government, Wall Street and the bankers crowed and crowed about green shoots and bottom.

Look at the charts in '30-'33 and see how long it took for their complicit lies to come out fully.

It then took decades to recover from the lows.

Think it couldn't happen this time around? Well, then you need to consider one thing:

In the thirties America was in the grips of an industrial revolution AND a population explosion (side note: we currently have more legal immigrants entering our country annually than we had at the PEAK of early last century. Another note: when the depression hit, we didn't leave the doors open and immigration slowed dramatically, for some reason this time we think more workers will help the lack of jobs).

This time we off shored our ability to work our way out of this.

Isn't it becoming apparent yet that our ENTIRE economy was built on cheap credit and housing?

The market HAS to fall further. If not this year, then coming soon.

There are no customers for the companies to sell to. No matter how you manipulate the system you still have to have customers.

For many listed companies their best customers were American small to mid sized businesses. And those customers are fading faster than you can imagine.

Jul 09 10:04 AM