The S&P closed yesterday at 998 and futures are down slightly this morning (this chart is a 20 min delay - as I blog, the S&P futures are a little further down at 993) - indicating a lower opening on The Street, continuing yesterday's slide....
I put up a pretty colored chart yesterday - showing the 2 trading areas that had dominated trading throughout most of the month of August. It took all of the better part of the morning on the first day September to stage a complete retreat from both of these areas. Anybody who is in FAZ or any of the other inverse ETFs had a good day yesterday - with the possibility of more to come in the near future. So here's the chart and the pretty colors again:
S&P500 - 15 Minute Chart - 4 Days
The red area is the Valley of Death with the 2007-2009 Fibonacci 38.2% Retracement line at 1014 as the upper bound. Remember it took several tries and a retreat back down to 980 before the bulls managed to muster the strength to get through there. And once the S&P got past the Valley of Death, it stalled in a trading zone in the yellow area - never getting past 1039 on the upside, and testing the Fib 38.2 for support a couple of times.
And look at how what happened yesterday - within 2 hours of the open not only was the trading zone left behind, but the Valley of Death was cleared in 15 minutes. Important potential support areas at 1014 and 1000 were completely ineffectual and the work of a month was gone in hours. A complete retreat for the bulls and a triumph for the bears - look at the size of the down MACD-H impulse yesterday compared to the previous days.
So where to now? There are 2 very important support areas coming up for the bears - 992, which was a very active support/resistance area going up, and 980, which was a big reversal pivot last November and resistance on the run-up this summer, and served as the big support level a few weeks ago on that first retreat down from the Valley of Death.
980 is the important area to watch - the last time the S&P retreated it got a very strong reversal bounce at that level. If that happens again, there will still be strength left in the bulls. If it falls, then the downtrend is definitely for real and very worth getting in on the inverse or short side.
S&P500 - Daily Chart - 3 Months
I drew a thick red line at 980 on the daily chart, which also nicely shows where 980 acted as support in mid-August. Think about what makes a trend - higher highs, higher lows for an uptrend, lower highs, lower lows for a downtrend. Look at the uptrend that started at the 2007-2009 Fib 23.6 Retracement line (880) in Mid-July.up to the top in Mid-August - higher highs, higher lows. Right now, if we turned around right now and went back up, that higher high, lower high thing would still be intact. We need to get below 980 to effect a lower low and confirm the downtrend. So 980 is sort of a last stand for the bulls. If they can hold that line and find support as they did in August, there's still hope - if it folds it's all over (well, not literally "all", but you know what I mean). I noted back in August when we were last in this situation that those who are prudent may wish to wait until 980 is broken decisively (i.e., a close below that level) until committing on the bear side. As it happened that first time, that would have been the wise choice. It still is true now.
I also drew, in red, new Fibonacci lines from the March 9 low to the August high. The first Fib Retracement level - the 23.6% - occurs right around 950 - which also coincides with the June highs. It was a strong resistance then - will it be a strong support now? That would be the next area to look at if 980 does not hold as support.
If the chart pattern ends up being the Head-And-Shoulders that I discussed last month (hey webmaster - if you're reading this, I'm unable to access any older posts other than those listed on the first page - the links to pages with earlier posts seems to be broken), then 950 will be the top of the right shoulder, but prices have to drop down first to the 880 neckline before coming back up. So for the Head-And-Shoulders pattern to work, 950 has to fall. We'll see.
That's it for now - they need me at the salt mines.
Good luck!