SPX Testing Short-term Support.

Testing Short-Term Support.

The support line ST-S1 is now being tested. We saw a quick drop today after the downsloping ST-R1 was taken out. Now, it's logical to expect a bounce off ST-S1 back up to ST-R1. If that bounce does occur, ST-S1 becomes more important as its been a while since its been tested and a new successful test is another point on the line. I suspect the trading day will close between ST-R1 and ST-R1 which won't really tell me much of anything. However, if we are truly going much higher, ST-S1 should hold as its not unreasonably steep. If ST-S1 fails to hold either today or in the future, we should go quite a bit lower.

If we drop through ST-S1

and then down to 750, then we rally back up in an attempt to test ST-S1, we're in danger of forming a Head-and-shoulders Top (HST) which would then be confirmed with a drop below 750. The minimum downside implication of the HST would be down to around 700. This is a possible scenario for which I be watching closely.

This Rally Started with a Gap.

Historically, most gaps in the SPX fill. But the word, "most" is important. The gap down below 680 certainly doesn't have to fill but it's also difficult for it to leave the minds of traders. If we start getting some support failures, such as ST-S1, or especially the neckline of an HST, that gap will begin to pull the SPX down as more and more believe that it will fill and thus will put off taking long positions.

If the drop happens, it will be very interesting to

watch how the SPX reacts around the 700 level. If the SPX really wants to go higher, there may be so many buyers at and above the gap that it cannot actually fill. That would be a bullish clue.

As you can see, the downtrending resistance R1 has recently confirmed its importance by pushing the SPX down in the last couple days. I believe R1 is now proven to be the key technical operator right now. If R1 can be overcome we'd be off to the races on the upside to around 900. On the other hand, R1 still has a parallel counterpart (S1) that may come back into play if there is further downside in the near future.

If it isn't obvious

I'll say now that I'm in a 50/50 mode when it comes to which direction the next significant move will be and I'll be looking at clues to skew my opinion one way or the other. I sold accounts not managed by mechanical methods to cash at the recent high but I'm not at all confident that will end up being the right move.