SPX S/R Week of 5/21/12

SPX support, resistance, moving averages and other important levels are presented below. Keep an eye on the slope of the 150-day MA since that will be another nail in the bull coffin if the slope turns flat then negative.  Currently, the slope continues to move upwards which is bullish.  Price came up on Friday and was spanked down by the 150-day MA so it is serving as a resistance ceiling moving forward.

The head and shoulders (H&S) pattern for the SPX broke the neckline at 1340 which would now target 1260-ish (head at 1420, neck 1340, target 1260) but a back kiss has not yet occurred to allow price to come back up to 1340, so watch for this to potentially develop. Markets are in need of a strong recovery bounce due to the beating over the last two weeks ("Sell in May and Go Away"), and the oversold levels, but markets have crashed from oversold levels. The SPX lost the 1300 level on Friday.

Despite the bearish strength late week, which would be anticipated since weakenss typically occurs in front of a new moon, the bears could not penetrate the critical 12-month MA at 1291.73.  The Friday LOD was 25 cents away from signaling armageddon. A drop under the 12-month MA signals that the markets have fallen into a secular bear market pattern and much lower prices would be expected moving forward. The NYA 40-week MA cross, another secular indicator, already fell into a secular bear market pattern a few days ago. If the 12-month MA fails this places QE3, and more likely a global intervention that would include LTRO3 as well as help from China, Germany and Japan, firmly on the table moving forward.

Thus, the importance of the 1292 level cannot be understated. SPX 1292 is extremely strong support on a price basis as well. In addition, the Halloween high last year before the November selloff was 1292.66. In a nutshell, 1292 is for all the marbles and Monday we find out the result. If 1292 fails, 1289 is the next key support which is the 10-month MA which is a multi-decade favorite to watch by gristled veteran traders. If the 1289 gives way, bulls can give up any remaining hope. The Russel (RUT), Trannies (TRAN) and Dow Industirals (INDU) have all lost the 200-day MA; the SPX and Nasdaq (COMPQ) have not, so watch the 1278 level like a hawk as the days tick by.

For Monday, the SPX begins at 1295, only 37 points above the starting year number, the punch bowl has gone dry. As discussed above, the critical line in the sand is 1291.73, it if fails, Nellie bar the door, since the broad indexes will enter a potential crash mode. The algorithm's on many robots (including Keystone's algo Keybot the Quant) have the 12-month MA programmed into the quants so failure of this level will likely lead to market mayhem.  That said, the sentiment is uber bearish, articles and media are forecasting further market trouble, the CPC is well over 1.2, the NYAD printed uber lows, and other indicators, all say the sentiment is much too bearish now and a strong recovery bounce typically occurs from such bearishness.  Considering the importance of 1292, the bulls better bounce the markets now, otherwise, they will lose all control.

The bulls need to push up thru the 150-day MA to launch a strong comeback and further accelerate the upside.  If the 150-day gives way to the upside the SPX will likely head upwards for the 1340 H&S neckline back kiss. A move thru 1293-1311 is sideways action for Monday.  Enjoy the weekend since the markets have a date with fate on Monday, does the 1292 hold, or is armageddon at the door step?       

·        1327

·        1326

·        1323

·        1322

·        1319

·        1318

·        1316

·        1315

·        1314

·        150-day MA 1313.61 (150-Day Slope is One of Keystone’s Secular Signals)

·        Friday HOD 1312.24

·        1312

·        1308

·        1307

·        1305

·        1300

·        1298

·        1296

·        Friday Close 1295.22

·        1295

·        1293 (10/27/11 Intraday High 1292.66)

·        1292

·        Friday LOD 1291.98

·        12-month MA 1291.73 (One of Keystone’s Major Secular Signals)

·        1289

·        10-month MA 1288.79

·        1287

·        1286

·        1285

·        50-week MA 1282.13

·        1281

·        200-day MA 1278.22

·        1278

·        1277

·        1275

·        1272

·        1270

·        1268

·        1267

·        1265

·        1261

·        1260

·        1258 (1257.64 start of 2011; 1257.60 start of 2012)

·        1257 (3/16/11)

·        1255