Sunday, October 10, 2010

S&P500 Technical Analysis (10/10/2010)

S&P500 Technical Analysis Chart:
Irrationally exuberant is back again. Traders think everything is back to normal, but reality is that fundamentally nothing has happened, Friday unemployment data supposed to be -8000 instead we got -95,000! Greece, Ireland and Portugal did not come out of the ditch yet. Japan has started the second round of QE2(quantitative easing) They have been doing it for over a decade, just look at Nikkei-225 it is clear that QE does not work. In December 29th 1989 Nikkei 225 made the all time high of 38,957.44; it means despite all government interventions Nikkei-225 has fallen 75.14%! Please see my post on Japan quantitative easing.
Non-farm employment graph:
To me QE2 is equal to financial suicide, and Ben Bernanke(Chairman of the United States Federal Reserve) will be the next to jump start the QE2 soon. We are in earning season therefore technical analysis would not work. Earning news will be the force behind the market. Financial analysts lower the bar that will help most of S&P500 companies to beat the expectations. the 2011 earning growth has been reduced by 15.74% from 17.80 to 15.00 percent.

I will point 3 scenarios that could come to play.

1) Bullish:
As I mentioned a couple weeks ago, if S&P500 gets above 1150 it will shoot for 1170.
in the case S&P500 breaks 1170 and stays above it for 3 days it would shoot for 1200-1220.

Pay attention to 1170-1180 as major resistance area.
what makes it such an important area is the fact that there are so many bulls who trapped between 1180 to 1220 who pray to god that market rallies to get even.

2) Bearish : If S&P500 fails to stays above 1170, it could tank as low as 1070. It's critical that 1070 holds because it marks the lower side the uptrend channel (see the chart in orange)

3) Dooms day: If 1070 fails to hold bulls are in trouble. In this case S&P would tank to 1010 or as low as 950. which mark the completion of sub-wave (3).