The Trader Battle Is On!

Hi there, and welcome back to CRI's S&P 500 blog.

The weight of civil war in the middle east, and now a historic earth quake in Japan has brought the prospects for continued global growth into question and brought equity prices back to a short term support area on the weekly chart. In the past month we came within 1.5% of our initial upside bull flag target (136.09 was the target and we hit 134.69 on Feb 18th) so I'm not too concerned if we need to consolidate the gains seen over the past few months. Please keep in mind, we are still very much in a bull market with the last 'investor buy signal' being registers almost six months ago and some 16% ago. So for now I am considering the current price action a Traders Battle contained within a broader bull market. To that end, I have included below the daily price chart so you can get an idea of what traders are looking at in the short term. If and when prices do come back into short term support (118 area), one might argue a longer term buy may look very attractive.

When we look at the Daily price chart we see that there is indeed a lot of reason for this market to cool off a bit. On top of the fact that we have been issued 3 separate double top breakdown sell signals of late, the 13 EMA is now crossing the 30 SMA bearishly. Put it all together and we see that supply is overwhelming demand and prices have no choice but to fall. The question now is, where might prices correct to. To answer this - I like to refer to, first, the 50% rule (currently near 125) and then to see where there are gaps (very big gap near 118) and lastly to see where the 200 SMA is (currently near 118). My downside targets therefore ought to be 125, then ultimately 118. I will keep these targets in mind until we either see the stops taken out (massive resistance just below 134) or a new double bottom price pattern comes in. Either way, this may take some time to happen so I'm not in a big hurry. 

The daily chart analysis seems to correspond to the weekly chart in that solid support for this market doesn't really exist until we get back down into the 118 area. The sheer magnitude of the rally off last falls bottom needs to be appreciated coupled with the fact that we live in a very volatile world. The exact bottom price is of course anyone's guess but my hunch is we will be setting a base for yet another push higher in the months and quarters to come. 

So to all 'investors' out there, be long, stay long and enjoy the ride.