S&P 500 Chart – Getting Tired?
I charted the S&P 500 ($SPX.X) after the markets closed on Friday, November 20, 2009 when the SPX finished the week at 1,091.38.
The steam seems to be coming out of the rally that’s run on for most of this year. The SPX is still within its major trading channel that’s been in place since March, but its last peak didn’t make it back to its trend line of higher highs. In fact, a new trend line has emerged that has a much less steep trajectory. This one is more realistic to work given how far we’ve come and how fast it’s been. So, that speaks to the upside as likely limited to either the closest trend line, just a few percent away.
The downside has a few potential areas of support not too far away either. The 20 and 50 day moving averages have acted as strong support during this rally, especially the 50 day. The 50 day has been the line to watch and any breaks are short lived and mark the point a decent rally soon after. The trend lines of higher lows are close by too. I drew two lines which are close to each other around 1,050. Those are the biggest lines to watch in my opinion, especially if the rise up to meet the 50 day moving average at about the same time the index comes down to meet up with them.
I left the 200 day moving average on this chart as a reminder not to get to giddy just because there are rumors of a Santa Claus rally coming to town. The 200 day line is more than 13% below the current level of the S&P 500. A drop down to the 200 day moving average would be a solid correction and should bring in a lot of the money that’s been on the sideline. I can’t see us heading down there before the end of the year, but won’t be shocked to see a reversion to the mean soon into the New Year when money managers aren’t trying to chase end of the year numbers with money that should’ve been invested sooner.
I see a market that appears to be getting tired. There’s room to see the SPX climb back to its highest trend line of higher highs, but that could turn into a shorting opportunity at the end of the year. I’d prefer to see the index stay below its shorter trend line of higher highs and return to more “normal” returns with better predictability. The downside is likely limited in the near term, but look out for a longer term (more than 45 days, yeah, real long term) reversion back to the 200 day moving average. Williams %R is nearing the tipping point. If it trades below overbought for the next two to three days we could see a much bigger sell off come sooner than the end of the year.
Comment by mule65
Worth adding that small caps have gotten tired too — see link. But, if the dollar keeps tanking the markets and gold should keep on keepin’ on. Nobody seems to care about the greenback even though the MSRP of a loaded 2010 Chevy Tahoe is over $57,000.
Comment by IanIan@stock-options-made-easy.com
Maybe it is also intersting to note for the future outlook, the comments by The Private Conference Board, stating that with the index of leading economic indicators rising for the seventh consecutive month in October, shows that a recovery is “unfolding” in the U.S. economy.
Comment by Dave
This is more a question than a comment..I am nairly new at trading options. I have had my ups and downs making money..I don’t use fancy option strategies..I simply buy and sell puts and calls… My question is this..I bought CME Dec 350 calls last week Tuesday Nov 17th. I paid 2.80 per contract. The stock price at that time was $321.40. The very next day the stock price moved to about 325 and my option moved up about .30 cents. Here I am today Monday Nov. 23rd. CME stock price has jumped and hit a high of 329.90. Yet my DEC 350 call has now fallen to 2.20 ????? Can you explain to me how this can be. The stock price is up nearly $9 from when I bought only a week ago. COuld that much time value have been taken from my option.Just seems immpossible..and how would you have traded something like this Knowing from your tecnical analysis that the price should have been higher. Any comments would greatly be appreciated..
Comment by mule65
Dave, you really think CME is going over $353 by December 18th? The current odds are basically the option premium.
Comment by Alex Fotopoulos
@ Ian and Mule – I think there are a lot of conflicting indicators right now and that’s why you so many passionate screamers in the media screaming with valid arguments for 10% in either direction and that’s why I like to chart. You can find fundamentals to fit either side and then you throw in comments by the Private Conf Board or a Fed official and you get more skittish traders.
@ Dave – I don’t follow CME enough to give a 100% accurate answer, but what probably happened was a combination of various factors. VIX is down a couple of points from last Tuesday. I’ll bet CME’s own implied volatility for CMELG dropped a lot since then for some unknown (to me) reason. Depending on what time of the day you bought your calls there could’ve been emotion swaying the belief that CME was about to take off. I see on the chart that CME opened up strong in the first part of the day before faltering. If you didn’t use a limit order and just bought at the high ask that could be a part of it. A week can take out a lot of value from an option, especially with the closer month expiring. Starting on 11/4 through 11/18 CME had a good run and I’m sure some short covering had to play a part with the higher option prices. Once the rally took a breather, so did the option prices. Your example shows a good reason I don’t buy options often. You could end up with it working out, but you might want to consider exiting before you lose it all. CME came within 10 cents of it’s 10/26 high and then fell 2%. That’s not a good sign for the chart. I could even see CME down $8 more from here based on the chart, but then again I don’t follow it enough to give reliable advice on it. I’m just looking at the chart.
Comment by Alex Fotopoulos
I posted a CME chart at chart-analysis.com to illustrate my opinion of where it’s going a little better.