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S & P - Price Tenuously At Support. There Is A Sinkhole Underneath.

Wednesday  30 June 2010

 The weekly chart shows the likely direction for the market over the
next several months.  It ain't a pretty picture.  For the here and now,
price is teetering on important support.  The biggest problem with
this support is that we are now down here a few too many times,
and the manner in which price reached the support level is also
problematic.  This last time, the ease of movement has been swift.

 Will support hold?

 Hard to say.  It looks like not.  Well, we say hard to say, but the
handwriting is on the wall.  Support could hold and price rally, but
it would  be a postponement of the inevitable: much lower prices. 
Because the 1035 area has held, we will wait for confirmation that
it is giving way.  It is possible to argue that the market may be
oversold, but oversold is relative and can easily become MORE
oversold.

 Back on 8 May, we mentioned that the large decline of 6 May
would create a trading range, [See S & P - Apply Some Simple
Logic
, click on http://bit.ly/aurqH9, see third paragraph above
chart at end].  Again, we emphasize that support and resistance
are areas, not absolute points, so there can be some penetration,
but price still holds the area.  You can see that price has been in
the anticipated trading range.It is evident that the best any rally
could do was reach a 50% retracement, and that speaks to
weakness in general, and it addresses why the overall
character of the structure shows weakness.

 Bottom line for the near term is to see this support violated with 
conviction, not just with lower prices, but also accompanied by
increased volume.  Until that happens, there still remains the
possibility of some kind of rally. 

 The previous rally high around 957, back in June 2009 was
resistance, and it will now offer potential support as price declines
into it.  We have also drawn a channel off the April 2001 high, and
it shows that there is a lot more room to the downside.  We are of
the mind that price will be contained within this channel for
sometime to come, including rallies.  Ultimately, the March 2009
lows should be retested, and that level is 665.75.

 No need to be in a hurry.  There is ample room downside to get
positioned while this tenuous support is resolved.

 

S&P W 30 Jun 10