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Futures Trade Desk- S&P 500 Technical Review

Client Note

S&P 500 Technical Review


Trend: Mixed Momentum: Mixed Sentiment: Mixed Daily Trading Range: High 35.90 (3.2%)          

Daily Simple Moving Average Lines: Blue (20 SMA) Green (50 SMA) Orange (100 SMA) Red (200 SMA)

S&P 500 4-Hour Chart

S&P 500 4-Hour Chart

Technical Wave: Testing both support and resistance in equal measure in a mid-term sideways chop that is moving around the Jan 2011 opening price of 1253. The 200-day SMA resistance area at 1260 will be important through until year end, as will the 50-day SMA support area at 1220. Overlapping and volatile price action is struggling to find fair value each day, outside of knee-jerk reactions to breaking headline news or regional markets opening and closing. The latest price action in response to central bank intervention have pushed prices back and forth around summer 1997 ES valuations.

Buy Support: Bullish traders may be looking to buy the short reversals to 1210 (the 50% Fibonacci retracement of the move higher from 1145 to 1275), which could then target 1225 and 1275.

Sell Resistance: Bearish traders may be looking to sell any moves that fail to break the 1275 area (the price point around the move higher from 1145), which could then target 1255 and possibly 1225 if financial outlooks decline into 2012.

Overall: It is surreal that the S&P 500 can be flat after 11.5 months of trade, and yet move 1.5% in five minutes most days and maintain a daily trading range of 3%. Equity investors have witnessed a tumultuous period of trade that stretches back to mid 1997 that has not seen any sustainable growth; current S&P 500 valuations are at Dec 1998 and Dec 2010 price points. Buy-and-Hold has died, and the future of equity trade seems to be in Buy-and-Sell and will remain that way for as long as electronic headline-news reading algorithms control intra-day price action. Investors withdrew $3.7B from domestic equity funds last week, totaling over $44B in the last 14 weeks and over $120B this year, eclipsing previous records. Retail is not buying into the volatility created by ever-reducing market participation levels. If US 10-year Treasury note values break and hold above 131.50 the chances for an equity rally diminish substantially. 

This Week: Accept that news-headline related moves are dominating technical potential, and that the already high average daily trading range is likely to continue moving higher, creating further volatility. In 16 weeks the S&P 500 has made 16 consecutive moves up and down that averaged 10%, on the back of a daily trading range of 3.3%. Danger signals are flashing, with most initial break-outs being quickly returned to their starting point.