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S&P 500 Technical Update


What's worrisome is the quick two-day ascent. Here's what to watch today.

After cascading lower earlier this week, the financial markets have recovered nicely. In fact, so "nice" that the S&P 500 has retraced 50% of its losses spanning the recent 4/2 high down to the recent 4/10 low. And so "nice" that it took just two days to do this. Trust me, I would like to call this near term bullish, but I'm very concerned that the market may let us down in the coming days for a couple reasons.

First and foremost, many major indices are technically "broken" (near term). Trendlines have been lost and a minimum requirement of "time" is needed to heal. But "price" is the concern here for traders. And this will be magnified if the recent lows around 1357 do not hold.

Also worrisome is the quick two-day ascent. After a technical waterfall breakdown, this type of "floating" lift upward is quite common and usually a sign of the bear. And it usually involves the least amount of participants initially and lots of catch up to push prices higher. This was exemplified by yesterday's gap open that left many feeling behind and anxious to get in on the action.

I feel fortunate that into Tuesday's abyss I entered some "right-sized" positions in the S&P 500 Index (SPY), Gold Miners (GDX), Arch Coal (ACI), and Valero Energy (VLO). But I have exited all of them and am sitting on 100% cash at present. See Tuesday chartology's of Gold Miners here and Valero Energy here (I will look to re-enter each on a pullback next week).

I plan to watch the markets closely over the next day or two to see how the S&P 500 handles 1390-1395 on a closing basis (1388 is the 50% Fibbinacci up retrace and 1394 is equidistant shoulder depth to late February/early March pullback). Any actions will be quick and I may look to short the index via SH. I will also be watching the Financials Sector (XLF), as the financials have been a key ingredient to the S&P 500 rally. See technical charts below and trade safe.

Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market.

Twitter: @andrewnyquist
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No positions in stocks mentioned.

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