Tuesday, August 9, 2011

1100 or 1040 is the next support levels for S&P500

It was a surprised to me and many other analysts when we heard Standard & Poor's downgraded the U.S. sovereign debt rating to " AA+" after market closed on Friday August 5Th. I was looking to downgrade sometimes in September but they jumped the gun! they didn't give any chance to the super committee to come with their plan. S&P had threatened if republicans and democrats fail to come up with 4 trillion cuts they are going to downgrade the U.S. credit rating. China's Dagong Global Credit Rating the biggest Chinese rating agency had downgraded U.S. several times in the past. The latest assault of the U.S. credit debt rating was on August 3rd 2011 from "A+" to "A" with a negative outlook. The only positive point is that Moody's and Fitch did not downgrade us yet!

If you did not go short you missed the boat. I'm getting ready to cover my shorts and get ready for possible bounce. S&P500 could get a bounced from 1100 or 1040. What you should pay attention in coming weeks would be 1200-1211 resistance levels. If S&P500 fails to get above 1200 I will add to my short positions. As you see in the chart above 1200-1211 coincide with 20 months moving averages (see the chart green lines) as you see in the chart S&P500 clearly broke the uptrend channel. It also violated the 20 SMA in the monthly time frame. Similar action in 2008 resulted a bear market. I also may play the long side if we get the dead cat bounce from 1100 or 1040. This is base on similar action was taken in 2008 after initial channel violation. Please note that S&P500 could spend the next couple months in a range 1040 to 1200 levels, which would be very bearish.