Monday, June 22, 2009

Precarious Market - S&P 500

Those analysts and traders who were clamouring for a "decent" pullback, they got one. They'd better hope that the pullback will stop right now right here.

S&P 500 daily chart shows we're at an interesting juncture. Simple 50-DMA (at 898) and 200-DMA (900) are just about to cross, with 50-DMA coming up from below. Today's big red candlestick sits on both lines. Now what? Daily RSI dived below 50, while money flow still shows, just barely, a positive divergence. Short-term, 875 seems to offer a support. Very short-term, you could say the index is forming a bullish wedge.

S&P 500 weekly chart seems to be at a critical juncture, too. This is a 3-year weekly chart. The candlestick that formed today sits on 13-EMA (slightly below). If the week ends below this line, that will end 13 consecutive weeks of the index staying above 13-EMA, longest since the bear market started in December 2007 when 13-EMA crossed below 34-EMA. If that happens, the November weekly closing low of 800 will loom large.

For now, I am pessimistic that this 13-EMA will hold for the week. The reason is the Treasury auctions for the week. Unlike the Federal Reserve that simply prints money out of thin air, non-governmental bond market participants has to come up with the money to buy the huge amount of Treasuries that will have to be bought by someone. That may suck out any excess capital, liquidity that there is in stock and commodity markets.

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