Who Has The Upper Hand In S&P Now?

Following the withdrawal of the candidature for FED chairman by Summers, S&P futures gapped up early today nearly 20 points reaching the previous all time highs. Our view up to now was bearish with a strategy to enter short positions when support levels are broken. Moreover, we also note in previous posts that prices were to reach 1680-90 if 1665-70 was broken upwards. So are bulls really in control or is this gap up in pre-market trading just a bear squeeze? According to our Elliott wave analysis and according to theory, if prices move past the starting point of a wave pattern, then the previous move cannot be labeled as impulsive. In our case, if prices (cash) make a new all time high, then we cannot label the decline from 1709 to 1627 as impulsive. It is therefore important to wait and see if the cash market makes a new all time high. Trend remains up and a new all time high does not cancel the increased possibility of a trend reversal. This does not mean that it is prudent to go short if new all time highs are made.

Our expectation is to see the gap closed or at least most of it. Today it is more probable to see a flat session near the highs and a try to make new highs sometime during the session. The pull back should start from tomorrow. Important support level is the 1678-80 price level while the 1690 is the most probable pull back target. Breaking below 1678-80, prices will be trading outside the upward sloping channel. This will be a signal of a short-term trend change. Although we remain bearish, the most prudent thing to do we believe is to stay neutral and only open short positions if prices break below support levels.

Current market price action has given bulls the upper hand. Prices will be targeting a new all time high today and after the pull back we expect, if prices do not break support at 1680, we should be expecting another leg up at least towards 1720-40. Needless to say that if 1680 support fails, then bulls will have to guard the very important support at 1630-40.

Concluding, we are not willing to participate or enter long at this stage as we still believe that bulls have more to lose at this price level. A pull back is anticipated to close the gap. Once this happens we will then decide if we will enter long with 1680 stop and 1740 target or will the bearish scenario unfold by breaking below support at 1680 after making another bull trap near the 1700 price area.

Disclosure: None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions.