The S&P 500 in a holding pattern
We’ve been following the December futures contract of the S&P 500 index for some time now and frankly the index has been rather insecure. Though it has offered some profitable opportunities for swing traders, a conventional bull or bear, has not been able to make a lot of profit from the long term perspective. The market has shown to be rather insecure when it comes to directions for the S&P 500 index. Now that the December contract has ended its life, what isv
the future for the index.
After having formed the three mountain top this summer, the index has fallen an risen on several occasions, being supported on the down side at around 1400, but not being able to break through the resistance just under the 1580 mark. The top, as we have pointed out, is about the same as the top of the so called Internet bubble that began to loose it momentum late 2000. It just seems that the market is not willing to let the bulls pass that point.
On the other hand, the bears have not been any more successful in breaking the 1400 barrier, making this neither a bear or a bull market. Two attempts were made at breaking it, one in the middle of August, amidst catastrophic talks of a crashing housing market and in late November, when a heavier attempt was made to set a new low. The 1400 stood these attacks, but will it stand the third one. And when it comes to the top, which has not been under attack for some time now, will it be broken with a continued advance of the index.
The support area of around 1450 to 1500, has been keeping the index floating in a kind of a holding pattern, were it has been swinging between the upper and lower limits of the range. Not being able to set a firm direction. It seems that the bulls have lost their drive, but the bears not being able to pick up their’s and profit from an aggressive shorting of the market. Both the futures traders and the traditional stock owners have not been able to do much when it comes to long and medium term trading, except supporting the pharmaceutical companies that produce stomach relieve mixtures or other similar products.
When trying to look at the future prospect of the S&P 500 index, the inability of the index to break out of this trading range, has made it very difficult to see it go one way or the other. With the time passing in a none directional tunnel, it becomes even more difficult to pick the direction of the market. The only good thing about the index trading this way for a long time, being the bigger part of this year now, is that the break should be quite firm, which ever direction it will take.
This has been a time of not knowing what to do, and panic selling. As the index is turning out to be quite unpredictable, to which direction it will take, a passive attitude should be maintained. For those that are loaded with stocks in the index, a hedging strategy with put options, could be a solution against the severe stomach cramps that have been bothering them the last few months. This also being a much healthier approach. On the other hand those with vested interest in pharmaceutical companies could of course continue to support them by continued use of various mixtures. For those looking for longer term opportunities in the futures market, should wait for the index to firmly place it self on either side of this trading range. That could well proof it self to be a very profitable trade.
