Quick Technical Analysis: S&P 500 ~ market folly

Tuesday, December 30, 2008

Quick Technical Analysis: S&P 500

Barry Ritholtz has posted up an excellent quick technical analysis overview of the S&P500, courtesy of his research firm Fusion Analytics and Kevin Lane. Kevin is one of the founding partners of Fusion and is the director of Quantitative Research.

Take a quick look at this snapshot of the S&P 500

(click to enlarge)

And here is their commentary that follows:

"The market is still is well off the lows yet it has remained rather lethargic of late with many rally attempts fading pretty easily. While we have had some interesting days on the upside over the last several months the market still has not been able to display any consistency on the upside. There is a minor, yet significant, short-term downtrend (red line) that comes into play near 900.

A close above 900 could lead to a move back towards the 1,000 level (a nice move from present levels) where the market peaked in early November (next serious upside resistance level). For the S&P to make any headway higher it needs to eclipse that level. Minor trading supports exist below the marker near 850 (green line) and 820 (lower red line). If we break these levels we can expect a retest of the mid November lows.

Given volume was so anemic leading up to the Christmas holiday we can’t really say whether that last two days were good or bad since there just was no volume and the “C” teams were in control of the trading desks. So we will just have to see this week if the “A” teams are back or larger firms are content to call 2008 closed and leave the substitutes at the controls. Our guess is we can expect the market to be volatile since trading should likely be thin (typical this time of year) with this being a shortened trading week and staff at major investment houses thinned for the holidays. That said we would continue to be to play small here until the market unfurls it next directional move a little better vis-à-vis better internals."

We wholeheartedly agree with their analysis, as we noted very similar thoughts ourselves earlier in our most recent quick view of some charts. We are slightly positioned to the short-side as we expect resistance to hold and trigger another sell-off. However, we are not 'anticipating' this move as much as we normally would, due to overall market conditions (weak volume, new year, etc). If we breach 900 on the S&P, we would expect the market to then rip higher and we would quickly relinquish our slight bias to the short-side.

The main thing to take away here is to play it safe and wait for the market to give you a clear direction and then play it. There's nothing wrong with 'doing nothing' and being patient.

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