The S&P 500 index is now at 1403.04 which has proven to be an important support level in 2007, and an important resistance level in 2008, thus far. It has yet to decisively break the 1400 level to the upside and both momentum and volume are diminishing. So at the present time, there are three important characteristics of the S&P index that traders should note:
- The long term trend of the index is down, as indicated by the downward sloping 200-day moving index and the lower highs and lower lows.
- The intermediate term and short term trend of the index is up as indicated by the trendline.
- As stated above, 1400 is an important former support, and current resistance level and this is shown by the blue horizontal line.
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As shown in the chart above, the momentum indicators are indicating a loss of momentum in the short term. However, trend lines trump momentum. So this momentum loss should only be considered as an alert or warning at this time.
A high volume surge of the S&P 500 to 30 or 40 points beyond the previous high of 1422 would confirm the intermediate and short term trend as UP and bring the long term downtrend of the index into question.
A high volume failure to 40 or 50 points below the 1400 level would confirm the long term trend as DOWN.
Other indices are in similar technical positions. The Russell 2000’s important technical level is 735, and the Wilshire 5000’s important technical is about 14,000 – 14,200. The action in one index will probably confirm the others.
It seems that traders are believers in the latest rally as indicated by the S&P 500 volatility index ($VIX). As you can see in the chart below, in October of 2007, when the S&P 500 reached a multi-year high, the volatility index put in a multi-month bottom at 16.08. Today with the S&P at a significantly lower level (1402 versus 1576), the $VIX bottomed at a relatively benign level of 16.92.
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Finally, the ratio chart of the Gold and Silver index ($XAU) versus gold bullion appears to be showing that the underperformance of the stocks may be losing momentum. And today as gold appears poised for a retest of 0 an ounce and down almost on the day, the XAU held up pretty well as it was down only marginally.
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