S&P 500 Just Can't Decide

Talk about indecision. A look at the chart of the S&P 500 over the last few days gives a great illustration of the tug of war taking place between bulls and bears. After closing below its 50-day moving average (DMA) last Wednesday, the index quickly overtook that level on Thursday. Following the stronger than expected Q3 GDP report, the S&P 500 had its best day in three months and closed 1.4% above its 50-DMA. But the party was short-lived. No sooner than the S&P 500 closed above its 50-DMA, the bears stepped back in on Friday and the S&P 500 closed 1.4% below its 50-DMA. Today, the index looked poised to break back above the 50-DMA following a stronger than expected ISM report, but once again the sellers have come back into the market.

While up and down movements in the market are not uncommon, the specific pattern we've seen over the last few days is so rare that it has never happened before. Going back to 1928, the S&P 500 has never had a three day sequence where the index broke and closed below its 50-DMA one day, then snapped back and closed more than one percent above the 50-DMA the next day, only to sell off on the third day and close more than 1% below the 50-DMA. While this indecision will eventually work itself out, today's whippy trading makes it seem like the pattern is only becoming more intense.

click to enlarge

Comments

[Mad Hedge F...:]

qro The scariest costume I saw on Halloween worn by a kid dressed as the Dow Jones Industrial Average. Listening to all of the gnashing of teeth and hand wringing after the Friday close about broken trend lines, accelerating downside volume, and crisscrossing moving averages, you would think that a time machine had just magically transported us back to the dark days of March, 2009. The volatility index (VIX) has popped from 20% to 30% in a week. Impressive. A new CNBC poll says that two thirds of investors are now expecting a “W” shaped recession, and that the next big move in the market is down. Once all of the performance chasers finally got the equity weightings they should have had last March, the market could only go down. We cut through support in the S&P 500 at 1050 like a hot knife through butter. Next stop: 980. Then hold your breath.

Nov 02 04:17 PM

[DormRoom:]

It's a classic play. Instuitions, Money Managers, and trading desks that accumulated since March 9 are in a position of HUGE strength. They can short positions they already own to accumulate more,as weaker hands fold, thus controlling more shares of their preferred stocks, and increasing their dollar cost average. Once the accumulation is done, they buy back in quick succession, and let the rally continue.

SPY 101.63 is the line. They will push until there, then buy back shares.

I'm 20. Can someone recommend me literature on trading strategies the brokerage house uses for their trades; especially online trading. I'm creating a simulation program, and need reference material.

Nov 02 04:45 PM

[bartpr:]

is this the correction that is expected? when it comes the 10 wk snp ma will be turning downward. the 20 wk ma may do also. this is enevitable. every short term correction has done so in a bull market.
if the bear is in command the correction will be prolonged. who knows.

Nov 02 07:33 PM

[untrusting ...:]

Highly unlikely. The dollar cost averaging you are referring too is trival in dollar terms compared to the hugh run-up in prices since March. Market makers are interested in 100+% profits not 1 or 2 %.
If the big boys are building large short positions, then they will take the market much much further down than just a few percent.

On Nov 02 04:45 PM DormRoom wrote:

> It's a classic play. Instuitions, Money Managers, and trading desks
> that accumulated since March 9 are in a position of HUGE strength.
> They can short positions they already own to accumulate more,as weaker
> hands fold, thus controlling more shares of their preferred stocks,
> and increasing their dollar cost average. Once the accumulation is
> done, they buy back in quick succession, and let the rally continue.
>
>
> SPY 101.63 is the line. They will push until there, then buy back
> shares.
>
> I'm 20. Can someone recommend me literature on trading strategies
> the brokerage house uses for their trades; especially online trading.
> I'm creating a simulation program, and need reference material.

Nov 02 10:06 PM