S&P 500 Chart – Flip a Coin

I charted the S&P 500 ($SPX) after the markets closed on Friday, September 4, 2009. The SPX finished the week at 1016.40.  I drew four trend lines I marked A, B, C and D. 

• Line A is the trend line of higher highs.  It’s still the longest line of resistance and will be hard to break considering its trajectory allows a decent continued move higher at a reasonable pace.
• Line B is the trend line of higher lows.  It offers around a 7-8% retracement if the SPX moved lower quickly enough.  Pretty soon it’ll converge with line D if the SPX doesn’t falter soon.
• Line C was a short trend line that looked like it could make a run of higher lows, but it broke and the SPX gapped lower from there.  That same line is now acting as resistance.
• Line D is the shortest line of (slightly) higher lows.  It held support this week and will be interesting to watch from here.

Fridays finish, while at the highs of the day, fell within a point or two of the 10 day moving average.  I’d be more bullish if it broke above it.  I’m still torn though.  The trend lines I noted above show a narrowing trading channel and it’s going to force a break in one direction or the other before long.  With the SPX falling 4.5% last week and the 50 and 100 day moving averages rising, the downside risk has been reduced.  Trends can always break, so don’t expect me to move in big on margin in the near term, but after seeing the reaction of the markets to Friday’s jobs number makes me feel like the bull could be more than just passing by.  Throw in the ISM index rising and now showing an expansion and the bullish case gets stronger.

I was getting ready for a big fall when I saw the Williams %R indicator for the 14 day period fall for a few days in a row.  I just wanted to see the 28 day period confirm it for three days.  It made it two and then turned higher.  That killed my conviction, but the dent in the momentum makes me wary of the rally still.  We seem to be right in the middle of the trading channel between lines A and B.  At the same time some moving averages are breaking and others are showing support.  All this together makes me want to flip a coin with my projection of where I think the S&P 500 could be headed.  Calling it right from here will take some luck.