S&P 500 Chart – February 26, 2010

I charted the S&P 500 ($SPX) after the markets closed on Friday, February 26, 2010 when the index closed at 1104.49.

A few weeks ago when I posted a chart of the SPX I said the Williams %R indicator would give us the best indicator of when to buy.  A few days later Williams %R held to form and issued its own buy rating for the market.  Once this new little rally started, the line of resistance I flagged earlier for the 100 day moving average became less significant and the SPX closed above it, tested it and moved even higher.  After breaking above its 50 day moving average intraday the SPX couldn’t maintain its bull run.  It closed on the moving average one day and then below it the next which issued a bearish signal and again, stocks followed the technical indicator. 

This two day top just so happened to coincide with the trend line that used to be higher lows as support, but now has become higher highs as resistance.  With this faltering I was able to identify a new trend line.  This one is bearish and is now the new line of resistance for the index.  Next week we’ll be able to see as soon as Monday if this trend line has is the real deal.  Within a couple of days into next week we might see if the shortest trend line I drew below is more than a flash in the pan too.  It marks the trend of higher lows, but only for a few weeks.  These two lines will converge in a few days so our wait for a winner won’t be long.

The more telling indicator for the next week might come from the fight between the 50 and 100 day moving averages and the trading channel that has formed between the two.  The 100 day moving average has already started to break for the bears after the bulls couldn’t capitalize on the encounter with the 50 day moving average.  Friday saw the SPX touch both lines, but cross neither intraday as the cage stayed closed on both bulls and bears in a fairly boring trading day.  Watch which line breaks first and has at least two follow through days before getting too excited about either direction. 

The 200 day moving average is still edging higher each day, but is still roughly 6% below Friday’s closing price.  A reversion to the mean down to the 200 day moving average still has a decent shot of happening in the near term as the market digests a mixed bag, leaning bearish, of market data.  That might be just enough of another mini-correction to give the bulls reasons to buy on volume again.  The weak volume of this little rally doesn’t bode well for its longevity.  It’s probably going to take a bigger crowd to push the index much higher from here without some seriously improved fundamentals, especially as the jobs picture gets cloudier again.  Even if the odd weather has played its part in hurting unemployment, the result is still the same.  People aren’t working and at some point profits won’t keep growing for companies.  That’s not to say we’re due for a major correction.  Companies are still making decent profits, but it helps explain the past four months of sideways price action you see in the chart below.