Market encounters head winds

Since crossing 950 after the bull-bear tug-o-war(as mentioned in the prior blog entry), the market

gained almost 14%. It has been going up for the last seven months and we are just below a major resistance area in the s&p500 index. 1100-1150 is another area that has shown some consolidation in the prior up-down moves as you can see in the chart, ie. the market does not shoot straight up but consolidate or sell-off before moving up. If the market sells off then 950-980 area should provide good support.If it goes below 950 and stay below it then we have a major problem and will lead to another downturn in economic conditions. But at this point , i think the market will consolidate between 950 and 1125 and eventually go up to regain new highs.

S&p500 index bull/bear tug-o-war

(click the chart on enlarge)

S&P 500 index has some work to do in order to climb above 950. On a daily or weekly basis the index still could climb above 950 but on a monthly basis it has to close above 950 and stay above it for the long term sustainability of the market.

As the chart shows, the market started having difficulty at this level starting in 1997. So everytime it revisits this area bulls and bears get into a tug-o-war. The bears will defend the area around 950 with all the weapons they have in their arsenal. Bulls having climbed from 666.79 is already tired(not enough capital to invest at this level inorder to power thru 950) and needs some rest. Once the rest period is over, the bulls need to accumulate enough energy to bring down the bears standing in line at 950. Don't know how long bears will have the strength to hold the bulls below 950. Watch and wait!

Warning Signs

There are some warning signs in the horizon for the stock market.
The chart on the right side shows the ratio of Nasdaq vs S&P500 on a daily basis . Whenever this goes down and crosses 50 day moving average to the downside , the market also went down with it . Don't know if that's the case this time. Also I don't know if this is a short term issue due to rotation of money out of tech stocks and moving into banking stocks. But nevertheless this needs to be watched.

Has the Market hit a low at 666 on the S&P500?

(click on image to enlarge)
As you can see in the above image, the S&P 500 dropped below the long term up trend-line(red-line) from the 1980s, stayed there for a couple of days, then regained strength and went above the trendline. Also on the Fibonacci retrace , 666 is the 61.8% of the move from 1982 to 2007. So we have two technical patterns agreeing on this low. Now in order for this to be "the bottom" we need a retest. If the market falls significantly below 666 on the next leg down, then this pattern is null and void.

on Fibonacci retracement : http://www.investopedia.com/terms/f/fibonacciretracement.asp