Wednesday, August 3, 2011

S&P500 broke the up-trend channel, is it a fake out?

I was looking for a bounce, when S&P500 reaches the lower side of the up-trend channel(see the chart above in gray), but instead big institutions decided to sell! I bought some shares yesterday near close at 1254. We will see if I get it right. I would get out if S&P500 violates 1246 support level(see the chart in red) .

Bullish scenario: There is a good chance that this move was a fake out, just to shake the weak hands before sending the market higher. If S&P500 fails to get back into the up-trend channel it would be signal of starting a new bear market. That this point I would give the benefit of the doubt to bulls, but if S&P500 fails to get above 1340 by third quarter it means good days are over and we are back to the bear market.

Bearish scenario: If S&P500 violates the 1246 support level there won't be any supports until it hits the 1200-1188 level. In this case we could get a "Dead cat bounce" from 1200 or 1188 which should ended somewhere near 1246-1260. If S&P500 fails to get back above 1246, I would consider putting my bull mask away and jump to the bear wagon. At this point it's too risky to go short, I would wait to see how big institutions are going to react to in coming "Dead cat bounce". If they managed to squeeze the shorts and send S&P500 above 1260 you can go long ,but if S&P500 rallies up to 1260 and fails to stay above it, I'll become the big bad bear once again,and will short any rallies.