Watch 850 on the S&P 500
Elliott H. Gue | November 19, 2008 |
The S&P 500 has broken through 850 on several occasions over the past few weeks. In each case, however, the index turned around and closed higher, seeing a big rally in the final hour of trading. Today, the S&P 500 has once again breached 850 and looks to be continuing to deteriorate. If we don’t close back above 850, the market will have breached key support.
If this happens, the next obvious support level for the S&P 500 would be the 2002 lows at 770. I have been looking for the S&P 500 to put in a bottom and for a rally to kick off. So far, that hasn’t happened; the index has been trading sideways for weeks in a volatile range between 850 and 1000 and now appears to be breaking down.
That said, sentiment remains very negative and all of the news is bad — a great deal of weak news is already priced into the market. I still suspect a rally is in store but we may first need to tag those 2002 lows first.
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6 Responses to “Watch 850 on the S&P 500”
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November 19th, 2008 @ 4:41 pm
At 817 with twenty minutes to go as I write this. I think an 850 close looks very far away.
November 19th, 2008 @ 4:58 pm
Yes, looks to me like we’ll be seeing 770 over the next few days. That low “should” hold.
November 19th, 2008 @ 7:02 pm
I can’t see a rally taking hold until they restore the uptick rule. This market has been in a constant state of decline since the repeal of this rule in July, 2007. The trend has been, and will continue to be down until this rule is restored. I would love your thoughts Elliott and for you to look at the charts over the past year, the increase in short interest, the overall total of “up” trades vs. “down” trades also over the past year. The very definition of the uptick rule was to avoid “bear raids” but we’ve turned the entire market into bear territory. Again, I would love your thoughts or writings on this subject.
November 19th, 2008 @ 10:11 pm
Steve Hunter of Ultra Financial Services has observed that the breakdown from the triangle chart pattern projects a downside target of 730, where a new bottom should form.
November 20th, 2008 @ 5:17 pm
What’s the next low to crack? S&P 500 closes @ 754, far below 770.
Do you really believe that such support line exists? I think it’s a fiction which has nothing to do with the reality. But what is the reality that a stock like Linn Energy dropps 14% although all of its production is hedged until 2011 at price much above the current price?
November 20th, 2008 @ 6:17 pm
Technical support and resistance levels do have merit, at least on a short-term basis. I have been pointing these levels out on this blog to help to characterize what has been going on these past few days.
For example, the 850 level I discussed in a past post turned out to be a key level — as soon as it was broken decisively, the market predictably accelerated to the downside. Same again today with that 776.76 level today. Support levels don’t mean the market will find a bottom, but they can help us understand why the market sees accelerated selling at certain points and bounces at others.
As for Linn, I can’t find many stocks that are up today. My view is that the dividend is safe; I doubt they’ll hike distributions next year but they actually reset most of their oil hedges last summer at between $110 and $120/bbl. That’s looking like a good move now.