In our last Blog we mentioned that there was a higher probability that the May 2011 high would be breached (mini S&P). We were watching 1342 as the final significant resistance level at 78.6%. We did note that there would likely be some bumps in the road along the way.
(from July 4th Blog)
“It’s worth noting that Diamond’s key indicators (including the McClellan) have become over-bought. This may foreshadow a small correction/sideways movement before the market makes a thrust to the upside.”
On the 5th and 6th the market remained in a fairly tight trading range (giving us the forecasted sideways movement) before making a relatively significant move to the upside on the 7th. Interestingly, on the 7th, Bressert’s 5 Double Stochastic issued a sell signal. Not to mention, there were several indicators within Market Mentor Edge that remained in their respective over-bought range.
On Friday we saw some weakness in the market that was triggered by the anemic employment numbers as the market gapped down. Although the S&P didn’t completely fill the gap, it did manage to close on a relatively strong note (significantly off of the session’s lows).
So what’s next?
We are still sticking to our forecast that the May high will be re-tested. Of course, when/if this happens we will share some important resistance levels. One such significant level is 1380 in the S&P cash.
As you can see from the weekly chart, 1380 represents the 78.6% retracement from the 2007 high to the 2009 low. As such, we will be watching this level very closely.
For now, our attention will be focused on the May 2011 high. However, if the S&P mini futures continue to sell-off, look for initial support at 1330 to 1325 and then 1315. These are clearly very uncertain times. Traders must remain very flexible in their approach and forecast.