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S&P at a Critical Juncture Again

Before I get into my analysis of the current status of the S&P 500 index, I would like to take a moment to apologize for my recent 17 day absence from the blogosphere.  I took on a very large real estate project, and it has kept me extremely busy over the last few weeks.  I hope with this article, to get back into a more regular writing schedule.

Regular readers of this blog know that I have been bearish for several months.  In fact, I had a very large long position on the S&P 500 that I moved into cash at the very end of June.

I see the S&P 500 at a crucial juncture right now.  After the last decline, which brought the index back down to recent support levels at 1100, we saw the S&P kick back up to the 1160 area this week, on decent, if not spectacular volume.

And after three consecutive days of rally, it was inevitable that we might pull back on Friday, especially with another tepid jobs report coming out.

We didn’t get a huge sell off, because the 103,000 non-farm jobs created last month beat expectations by a large margin.  However, if you looked more closely at the numbers, over 40,000 of those “newly created jobs” were Verizon employees returning to work after a strike.  If you take that number out, the non-farm payrolls were pretty close to expectations.

Take a look at the chart of the S&P 500 below.  Do you see the declining 50 day moving average (blue line) just above the current 1155 level?  Since August, that has kept the index moving lower, and acted as overhead resistance on any rally attempts.  

 

                                                                                                        Chart courtesy of stocktrades.com

Also, if you look closely at the 200 day moving average (red line), it  appears that since mid September, it too is beginning to decline.  That would indicate a longer term bearish period is ahead.

Furthermore, look at the recent lows.  On several occasions, the S&P held at 1125, with one occasion in early August reaching an intra-day low of 1100.  Now, while many technical analysts minimize the importance of intra-day lows or highs, it is interesting that we had two consecutive days recently in which the low for the day matched or slightly exceeded that August intra-day low. 

And on the second day, the index actually dropped to a new intra-day low of 1075!

Also note how the 14 day RSI has rolled over around the 50 level the last FOUR CONSECUTIVE TIMES it has reached there.  Will Friday’s small pull back continue that trend, and if so, will the S&P 500 fall below recent support levels?

It would not surprise me to see that happen.  Oh, I could make a slightly bullish case, by saying that the MACD seems to be on the verge of a buy signal, and after a couple of declining peaks, the stochastic has moved a tad above the last peak level.

But to be fully convinced that the bulls are back in force, I would have to see the S&P 500 rise above the declining 50 day moving average, and stay there for awhile.  Even the flirtations above the 50 day back in July were short lived.  I would also want to see the MACD rise above the zero line for confirmation.

So for now, I’m sharpening my pencils, looking for possible Puts to trade, and hope to have some recommendations coming soon.

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