Wednesday, July 7, 2010

Anxiety of the Bear.

Psychologically, a bear market rally is the opposite of a bull market decline. When the bull is in charge dramatic short term drops cause the weak bulls to relinquish their positions in a state of anxiety. When the market suddenly explodes to the upside after a prolonged and dramatic downtrend the bears get nervous and run for their caves.
In the early stages of a bull or bear campaign the weak positions are easily shaken out of the market due to the speed at which doubt and fear returns to the psyche of traders. Currently, although a bullish case can be made due to the anemic bullish consensus, the state of anxiety amongst bearish traders has to be taken into account. It is only at major bottoms that weak and greedy bears are smugly content to sit through a rally--still confident of lower prices ahead. The anxious willingness of weak bears to exit the market is too high for a major bottom to be made at this time. Bear traps make great drama.

The following levels are important.

Retracement of the June 21 - July 01 Decline
June 21 HIGH @ 1131.23
July 01 LOW @ 1010.91
38.2% @ 1056.87
50.0% @ 1071.07
61.8% @ 1085.27

Extension of Wave A
1.618 @ 1062.02
2.000 @ 1074.09
2.236 @ 1081.55
2.618 @ 1093.61

Wave C Projection
X 1010.91
A 1042.50
B 1018.35
1.618 @ 1069.09
2.000 @ 1081.07
2.618 @ 1100.45

Chart Gap 1071.10 - 1071.45

Thursday's Pivot Supply & Resistance
R3 1093.24 R2 1082.25 R1 1071.26
PIVOT 1049.90
S1 1038.91 S2 1017.55 S3 1006.56

There appears to be three clusters based on the market structure from June 21st:

Moving averages:
21 day exponential @ 1068.88
55 " " @ 1099.01
200 day " @ 1095.35
Note: That the 55 day is just above the 200--close to making the 'death cross'. (although statistically it is not a great harbinger of lower prices.) A energetic rally to the 55 & 200, followed by a reversal would be a classic--but rare--bear trap. Action like this would satisfy the 'kiss of death' rally. (rally up to 200 and then reverse)

A move above 1107-1110 would set up higher targets. Any rally above 1110 would call for the reassessment of the current market structure. A close on Friday at either the 1071 or 1081 level would set up a time price harmonic potential pivot. (high)

The activity in the USD may reveal where the S&P is headed.If the USD finds support at the harmonic cluster at 82.70-83.10, both markets may reverse and follow their primary trend.

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