ES (SPX futures) August 28th low is now critical support at 1447.50. The chart is pretty clear, any break below will set up the same test on the continuous contract at 1434 (cash SPX would be at 1432). Resistance is 1462, interim support is 1455. Bulls will need a close above the 10 dma to regain control, something which has not occurred the entire month. We have not seen a November like this since 2000. If that year is any guide, bulls only regained control the first week of December, but the selling resumed mid-December.
In 2000, the bear market technically kicked when SPX closed below its 10 monthly moving average in September, followed by another close below that level in October. SPX current 10 monthly is at 1480, so a close below that in November could be a very serious red flag.
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on Sunday, November 18, 2007 at 11/18/2007 03:25:00 PM.
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11/18/07 10:07 PMWhile the monthly 10MA is shown to be important, it did have a couple of false breaks. On the other hand, the monthly 13EMA for SPX has been 100% accurate so far (I think so has 12EMA).
Michael
11/18/07 11:31 PM
Very good observation, thanks. Yes, there have been false moves in this bull run, but they occurred at the beginning(2004). We have had closes below the 13 ema as well (August 1998) that have been false starts. There is a little art to the science, no definite formula. But if you incorporate other factors, you get a bias that has a reasonable chance of succeeding. The economic conditions in 1998 were not the same as now. In 2004, interest rates were lower and GDP growth was projected much higher than the current forecast. So whether it is 10 sma, 12 ema or 13 ema, a close at those levels in November would be troubling given the overall financial backrop. I like the 10 month sma because it caught the turn in 2000 right in September/October and the turn in 2003 in April. Using longer time periods, such as the 12 or 13 ema, would put you behind a whole month. If we close November below 1480, I will not automatically put on my bear hat, but I will get very cautious if long. As I said, it would be a serious red flag.
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