Wednesday, May 25, 2011

S&P500 Up-trend Channel Has Held

On May 5th article I posted a chart click here; that I pointed 3 scenarios. So far my bearish scenarios has play out. What I like to see at this point is a strong short squeeze that ignite a strong rally. so far all we got was organized sell off. S&P500 hit the lower side of up trend channel(see the chart in yellow). Since August of 2010 S&P500 has hit it 3 times. As long as S&P500 would not violate this channel, bulls have the upper hands. If S&P500 stays below this channel for a couple days it means S&P500 is headed for 1274-1260 in coming weeks.

In the last 4 weeks S&P500 has moved in a narrow channel(see the chart in blue). this channel could interpret as bull flag. This is a very bullish formation, but there is one problem. Bull flags usually last 3 weeks. It means if we close this week negative, bulls will be in trouble.
bull flags usually give us 55% possibility of break to the upside. We shall wait to see what is going to play out.

Related topics:
S&P500 technical analysis chart May 5, 2011:

Wednesday, May 18, 2011

Some Thought on QE3, Fed Funds Rate and European Crisis

I don't care about chatter in CNBC and Bloomberg on doomsday scenarios. Fed is not going to announce QE3 anytime soon. Bernanke is going to play safe and announce that they are going to hold to their treasury purchases for foreseeable future. As I explained in my article on Option ARMs, the U.S. housing market can't stand any outside pressure. Unfortunately it is going to experience the second waive of foreclosures by August 2011. Any increase in interest rates would be suicidal for fragile housing market. therefore Bernanke is going to keep the Fed Funds Rate at 0.25% until late spring of 2012.

If last year someone would tell me an European country is going to pay +25% interest to borrow money for the next 2 years. I would fall of chair, but if you live long enough you would see that anything is possible. Greece 2 year government bonds yield hit +25% a couple days ago; yes! it yields more than junk bonds. European union members have to get their act together and do something about Greece, Portugal and Ireland. What makes me worry the most is Spain situation. Spain 10 year government bond yield hit 5.596% recently. If it breaks above 5.90% it would be very problematic.

As you should know by now, I'm a bear but I'm going to put on my bull mask ! I think big institutions are going to squeeze the shorts. I think the most we could go lower would be 1313 level in S&P500. obviously in past 3 weeks there are some damage done to the rally but I'm going to stick to my gun, "S&P500 is going to hit 1430 this year" we shall see what is going to play out.

Thursday, May 5, 2011

1343 support level is do or die for S&P500

S&P500 technical analysis chart:
1343 is the major support level for S&P500 that many financial analysts including me are going to pay attention on Thursday. I'm in the camp that 1340-1343 support level is going to hold. I'm going to wear my bull mask as long as S&P500 stays above 1340.

On the other hand if S&P500 violates 1340 and tanks below it for 2 or 3 days I would say bulls are in trouble, and there is more to go. If 1340 fails to hold next reasonable support levels would be 1335 and 1300. But if we get a fake move below 1340 for day or two then big institutions jump back and send the market above 1340 there is a good chance shorts get squeezed and causes S&P500 to rally hard. my bullish target for this year is 1430. let's see if we can make it!

S1: 1343

S2: 1335

S3: 1300