For the past few weeks the S&P 500 has been bouncing around in a trading zone between 1014 and 1039. The problem facing the bulls is that even ovecoming the upper boundary of that zone, there is one last piece of resistance ("piece of resistance" - HA!) immediately facing it at 1044 - the top of the very first reaction bounce after the waterfall plunge began in earnest in September.
Here's a little blast from the not-so-pleasant past (unless one was in FAZ like I was - in which case it was pleasant indeed):
S&P 500 - Daily Chart - 5 1/2 Weeks ending October 31, 2008
As you can see, things dropped very quickly beginning the last week of September. Within 2 weeks the S&P had gone from above 1200 to below 850. On Oct 10th the S&P found support and rebounded on very high volume. The apex of that rebound took place 2 trading days later on Oct 14 when the index hit 1044.31 and pivoted back down again - and is only now getting back to that level.
Because the market was so volatile (i.e., uncommonly large daily price changes), that 1044.31 is the only support/resistance area in the 100+ points between the low 1000s and the low 1100s left by the plunge.
Look at this way - think of how many days we've spent just since we first crossed back over 1000 in early August and all of the various support/resistance areas we've confirmed or created in that time in the 40+ points we've advanced since then. Last fall, we spent all of about 3 days in 1000s - 2 going down, and 1 going back up that culminated at 1044 (the S&P closed that day at 998, btw - hit 1044 intraday and then plunged almost 50 points by the close) and that was it.
So easy to go down. So hard to go up.
So how did we do today?
S&P 500 - 15 Min Chart - 4 Days
Today the S&P finally broke out of that 1014-1039 trading zone, made it up to 1043.56, dropped back briefly below 1040 and then finished at 1044.14 - the high for the day (very bullish).
I don't think it's necessarily a coincidence that it initally dropped back at 1043.56 or that it closed just a scootch below 1044.31 - that is what resistance does. Maybe the market will be strong enough to get past this - or maybe this will be another apex and downward pivot.
HOWEVER... I mentioned that this is the last resistance left over from last fall's fall. Above that could be pretty clear sailing if we get past it.
I've mentioned in the past that on a price chart there are 3 possible sources of support/resistance areas to be aware of:
1) those derived from former price action pivot points and support/resistance areas (remember the recent support/reversal areas at 980 and 992 were both pretty clearly identified by earlier support and resistance at those levels)
2) those derived from places where price and/or important moving averages cross each other (remember the problem that the S&P had trying to cross the 200ma back in June)
3) those derived from Fibonacci ratios (remember that the S&P has had major difficulties surmounting the 23.6% and 38.2% retracement levels of the 10/07 - 03/09 decline)
Of these, we've already determined that 1) there are no remaining resistance levels between 1044 and 1100 left over from last autumn's price action; 2) there are no potential moving average issues going forward for the bulls (price is currently above all the moving averages - it will only interact with them if price declines or goes horizontal for a long enough period for the averages to come up and meet it); and 3) the next Fib area doesn't occur until the 50.0% retracement up around 1115.
In short - if 1044 can be cleared the bias would definitely have to swing to the side favoring the bulls (and as my usual kiss of death, it will hit 1050 and PLUNGE! LOL).
Anyway, that's where we are. One of the themes of chart reading is that it helps identify those positions where things could go one way or the other, and one can derive meaning and gain confidence from the direction that is taken from that position. If the market continues to move upward, this is the last of those places for awhile - and a successful upward move through this area will constitute a definite and important signal. Nothing says that resistance/reversal can't be met up above 1044, but of the factors that we consider to increase our odds and confidence in the market, the next 70 or so points above 1044 look to be a real "sweet spot" for the bulls.
There, now I've totally sealed the kiss of death.
Later