For the short term traders out there, here is todays end of day comments from one of S&Ps technical analysts:
11/02/2011: Wed End of Day Comments
4:15 PM ET: GAINS SHOULD EXTEND, BUT RISK OF ANOTHER LEG DOWN SOON IS HIGH
STOCK MARKET SNAPSHOT: A wide range of S&P 500 1371-1014 is favored in the next few years as the secular bear market which started in 2000 enters its final phase. An uptrend began in early October and is intact. As the index gets closer to 1371, the probability increases of a downside reversal in the intermediate term.
NEAR-TERM CROSSCHECK UNIFORMLY BULLISH: Measures of trend, momentum, and indicators of risk appetite are all bullish as of 10/18. See my Near-term Outlook for details.
DAILY ROUNDUP: Stocks rallied, as a flight to safety on Monday and Tuesday was unwound. However, outside equities, the shift back into risky assets and out of safe haven markets was tepid: the yield on the 10-year Treasury was little changed by the end of the session; the euro managed to hold onto a small gain against the greenback; crude oil futures were trading slightly higher; the one bright spot was copper, which was up 2.5%.
IMPLICATIONS: A multi-day upswing off the Tuesday session low in the S&P 500 appears to be underway. The index traced out a base on Tuesday ranging 1233 to 1215, and broke out in early trading today. After pulling back into that range, price traced out a small secondary base at 1233-1227 and broke higher, reaffirming the bulls' control of the market and the integrity of the breakout from the larger base. As long as 1227 is not breached, the path of least resistance should stay higher on a multi-day time frame.
This is good news for the days ahead. However, it is not clear to me yet that the swing down from the 10/27 high in the "500" has completed. Put another way, I believe the probability of another leg down after the rise that started this morning is high.
Relative to the magnitude of the decline from the 10/27 high, the size of the base that formed yesterday is small. It does not look sufficient to indicate the sellers have been exhausted. From the standpoint of psychology, anyone who bought and held the position saw that gain either pared substantially or turn into a paper loss very quickly on Monday and Tuesday. That suggests the risk is high that any further gains in the days ahead could be treated as an opportunity to liquidate positions and wait for lower prices or a consolidation before entering the market again.
If the "500" does suffer another leg down, chart support runs from 1220 - which held yesterday - down to 1191. This range is based on the price congestion from 10/12 to 10/20 and the highs on 8/31-9/1 and 9/16-9/20.
The larger picture is that, while the risk of further weakness over the next week or two is high, the uptrend off the 10/4 low looks sound. Technical conditions on the monthly chart are bullish. So any price weakness on a multi-day to near-term time frame should be treated as a buying opportunity./Burba(chris_burba@sandp.com)
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