The market has been enjoying a nice advance over the past few weeks, largely due to the expectation of QE3 which Bernanke announced last week. But now we sit right above a previous level of resistance. I’ll admit that I didn’t think the Fed would come right out and announce another round of easing, I was wrong and thus must adjust my viewpoint accordingly.
Last Friday, I mentioned that I wouldn’t be too surprised to see things begin to weaken and/or consolidate, which it seems is exactly what Mr. Market is doing. Bulls will this this as an opportunity as many hedge funds and institutions continue to chase performance while bears will likely continue to point to the weak economy as justification to continue lower.
Below we have a daily chart of the S&P 500 with a rising trend line that had been acting as resistance throughout the rally off the June low. With today’s weakness following the down market yesterday we have reached this trend line and are testing it as support.
Three days ago we received a warning from the candle formation displayed. On Friday a bearish shooting star was created which can trigger a short-term potential top. A shooting star candle is created when bulls come out of the gate on the open in control and take the market higher only to lose that control to the bears, closing off the day’s high. Click the link above to learn more about this pattern. Typically we like to see a shooting star gap up, which we can’t see in this S&P 500 index chart, but when looking at $SPY, it did in fact gap up.
From here we need to see how the market treats this trend line and if it does in fact hold as support. Bulls will probably do all they can to hold things above 1450, we’ll see if they can be successful.
