Higher Prices Possible, but Air Is Getting Thin

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Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

Options expiration Friday ended up being everything it is hyped up to be: volatile, fairly unpredictable, and for most, not worth trading. After all said and done, however, stocks rallied into the close and finished at their highs for the day and week.

Given the wide resistance zone we currently find ourselves in on the major equity indices, somewhat higher prices are still possible, but we must be aware that the air is getting increasingly thin up here. The coming week has the potential to serve up some high-volatility trading sessions due to more EU summits and an onslaught of U.S.blue-chip and technology earnings.

For a little perspective I frequently review the weekly charts of the major indicators that I use. The main recent development on the weekly chart of the S&P 500 remains the break below the two-year uptrend in early August. So far, it looks like the early May high this year may have been an important lower high as compared to the October 2007 high.

What the index is doing now is re-testing the breakdown level from early August, and as such, will be coming into major resistance any moment now.

SPX Weekly Chart
Click to Enlarge

We see this much more clearly on the daily chart. Note the gray zone that roughly spans from 1,230 up to 1,300 and the numerous resistance signals that come into play there:

1. The horizontal resistance of the August to October trading range near 1,230;

2. The 61.8% Fibonacci retracement of the May highs down to the August lows comes in near 1,250; and

3. The flat 200-day simple moving average may also serve as resistance near 1,275.

Given the vicious and volatile nature of bear market rallies, further upside is possible. I currently see a maximum rally potential peak out near 1,300. Should we be able to sustain a rally above 1,300, we would need to reevaluate the situation.

SPX Daily Chart
Click to Enlarge

Plenty of charts across the asset classes look similar to that of the S&P 500. One such macro chart is that of oil. Much like stocks, oil also broke below a two-year uptrend support in early August, and is now coming into an important resistance around $92 (red horizontal line).

Oil Chart
Click to Enlarge

Some other macro charts worth watching for similar patterns are that of the EUR/USD forex cross, copper and semiconductors.

As is most often the case, the current trading and investing environment is all about time frame. While I feel fairly certain about more significant downside to come at some point over the next three to six months, the near term is much more uncertain and looks to offer more of a choppy and wide sideways trading range. My most important focus at the moment remains to keep time frames short and spot opportunities with clear stop-and-profit areas on the respective charts.


Article printed from InvestorPlace Media, https://investorplace.com/2011/10/daily-stock-market-news-higher-prices-possible-but-the-air-is-getting-thin/.

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