The S&P 500 cash index (SPX) closed at 1154.23 on Friday, a net weekly loss of 19.74 points, or about 1.68%.
Investors were anxiously waiting for reasurance from speeches by Fed. Chairman Mr. Bernanke and President Obama after the Lanor Day holiday. Unfortunately neither gave any helpful answers to those important questions about economic growth. So there is little motivation for investors to continue investing in this increasing unpredictable market.
This week is a quadruple witching option expiration week. The market may attempt to move up early in the week, and drop back down later. The uncertainty will keep this market looking for a downside move.
This is an excerpt from the Naturus weekly market preview. To see the full preview visit http://naturus.com
SPX Weekly chart
Technical analysis
Based on the SPX weekly chart (above), the intermediate-term has a sell signal. The 1210 area will act as a major resistance level for this week. And the intermediate-term trend will remain to the downside.
Based on the pattern movement, it is possible for SPX to move down to 1040-1010 — a potential neckline for a big H&S pattern. It could take 3 weeks to get there before the price has a decent bounce again.
Based on wave principles, it is likely SPX is in a weekly wave 3 move, which should take longer (time) and move farther (price) than its wave 1. In an alternative reading, the SPX may still be in a counter wave 4 process; that will be confirmed if 1140 line holds up this week and the price pushed back up to re-test the 1210 area. But whichever wave count is correct, we are still missing one downside wave 5, and the target for this wave will be the1040-1020 range.
The market volatility index ($VIX) has been holding its breakout line 30 since August. Pessimism is growing, which will make it very difficult to buy equities on a large scale.
We see several major obstacles for the SPX:
- The major market indexes are now in negative territory for the year after peaking months ago;
- The Fed failed to offer any meaningful hints about future stimulus, and many investors doubt large-scale stimulus will be even possible in an election year. One instance: The Obama job stimulus plan may be blocked by congress;
- The is continuing and growing fear of a debt implosion in Europe, with dire consequences for U.S. markets. The resignation last week of the ECB chief economist makes those fears more real.
All this will lead more investors to stay on the sidelines, at least for the short term, and makes any big sustained rally unlikely.
Monthly resistance 1250 and support 1030; Weekly resistance 1195 and support 1100
