Friday, October 1, 2010

S&P 500 Prediction - October 1st 2010

The S&P 500 has been stuck at resistance around the 1,150 level and has failed to close above that level for the past two weeks which comes as no surprise after a 13.63% rally from its summer intra-day low of 1,010.91 reached on July 1st to its highest close at 1,148.67 set on September 24th. The price action viewed on September 30th speaks volumes and may have marked the intra-day high for the S&P 500 at 1,157.16 with a spinning top which was preceded by two hammers all around resistance of a rising wedge formation.

Yes fellow traders, it is time for our year end BBQ and slaughter the Bulls.

So, what is next?

A correction towards the end of the year should be taken into consideration. We may have already had our Santa Clause Rally, a few months early which is linked to the fact that consumers may have already spend what they could not afford to spend during the summer. Holiday shopping season will be a bust and mainly driven by heavy discounts which will be an overall negative for retailers.

More important, third-quarter earnings season will be unimpressive while fourth-quarter guidance will deliver a big blow to equities over the next few weeks into December which will fail to give Bulls a reason to enter the market on the long side. The November elections should have little impact. Equity markets are extremely overbought, the stimulus is fading and leaves traders as well as investors with the reality which eliminates the recovery myth.

Short sellers were already squeezed out in September and are ready for action. Retail investors have entered the markets en masse and as we all know they buy at the top and sell at the bottom. There will be bumps during this correction due to the renewed bullish stubbornness which will carry over from September and last for a few more weeks.

A few levels to keep in mind

Over the next twelve weeks, the S&P 500 should correct to a level of 925.73 with a range between 897.96 and 953.50.

Bears be careful, there are some Bulls around and they will attempt to push the markets towards the 1,200 level. Ease your way into shorts and monitor developments carefully. Next Fridays employment report should move the markets and if the number is just slightly better than expected you will have plenty of opportunity to add to your shorts. At current levels it is not a bad idea to get your feet wet with a few minor shorts.

Photo Credit: The picture in the top left corner was created by thephotoholic and downloaded for free use at freedigitalphotos.net.

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