S&P 500 in no man’s land
Since our last analysis of the S&P 500, it has moved between the upper limit of the support area that was formed between late July and September 18, when the S&P 500 December contract spiked up and started the fourth try to break though the resistance level formed by the three mountain top formation of 1 of June and 19 of July. The marked reversed on the 11 of October and traced back to the upper limit of the support area where it bounced back until it hit it again beginning of this week. The survivability of the S&P 500 is dependent on this 
support area, which could be called a no man’s land in the battle between the bulls and the bears.
Looking at the last few month’s, the index could bounce between the borders of the support area for some time until it broke through, either on the long or the short side. On the other hand, the market could drive right through the lower boarder in this reversal. It all depends on the strength of the bulls, if they have what it takes to reverse the trend or not.
So how strong is this support area? Well, the index managed to stay above the lower border from the 6 of August until it broke out of it on the 18 of September, apart from the downward spike of August 15 and 16. This shows the strength of the support area to be considerable and it should give the bulls some confidence. On the other hand, when looking at the Slow Stochastic indicator (SSTO), the index is close to the 28% level in a downward movement. For the bulls, this is not supportive in their fight against the bears and does indicate that further decrease in the price is likely until the market could turn.
So for the moment the S&P 500 December contract is looking at a support around the 1,448 area or in case it breaks through that support, the low of August 16 at 1,387. After that we are looking at the low of June 14 2006, when the December 2007 contract showed a 1 – 2 – 3 bottom formation at 1,284.2, that began the last bull run that culminated in the three mountain top previously mentioned.
The S&P 500 has been having a difficult time in continuing it’s bullish run, a difficulty that seems to be hard to overcome. The next day’s and week’s are crucial for the index and will make it or break it. The strength of the market’s confidence is what will support the bulls in their fight against the bears.
