Nary May Ye Fall.

After a recent precipitous fall, much technical damage has been done. 1120 remains the last chance for sufficient support to avoid a further descent to very nearly 1000 (the July 2010 low of 1022).

The just-completed breakout from this tightly wound pennant formation would suggest further declines. The index hangs by a thread in this 1120-1130 area. And we haven't yet mentioned 8 months of overhead supply that hangs ominously above at 1260. It would take a Herculean effort to bust through that to sustain the rally they all dream about.

The Greater Fool Theory

In case you weren't aware of the Greater Fool Theory of investing, it goes something like this: As big a fool as you might have been to buy something that is over-priced, over-bought, and purchased as you jumped on that train, not realizing that the end of the line is only one stop away, there surely is a bigger fool that will buy it from you.
In the case of this recent 9 week, unabated run of the S&P, this chart says it all - if you are buying here, then you are, in fact, that Greater Fool.

The

Draw a line @ 655

Trees take a long time to grow, as do long-term fibonacci-based support & resistance. Truth be told, Fibonacci the mathematician took some of his ideas from measurements taken from tree limbs (no, this is not an urban myth) - i.e. spacing, distance from each other, etc.
The Markets made a double bottom in 1980 & 1982, and then a double top in 2000 & 2007. The 61.8% retracement of this 27 year move is 655. So look for a test of this, as well as perhaps something of significance happening (in the news?)when we are around this level.

Falling to Support

We seem to be headed to a 2nd, perhaps more significant (in the long term) retest of the long-term supporting trendline which runs from 03/10/03 to the present. As the circled area indicates, this is not a certain price, but a more general area that has the triple support of 2 converging trendlines and a horizontal support level. For now, there simply is no reason to suspect that we don't get a bounce, perhaps a violent one, right here at approx. 1430.

Gunfight at the S&P Corral

People draw fibonacci's variously. This one begins at the March double bottom and ends when the S&P broke it's established trendline on May 24th. As you can see, that resulted in some retracement lines that make sense - including the Aug 3rd touch and reversal at the 61.8% line. This is typically the line in the sand that says "Drop below here and we break the prior trend, and establish something new. Bounce from here and we avoid any such Bearish chatter."
What is clear is the fact that we are now entering an area of congestion and overhead resistance. My guess at this point is that any further advancement from here will initially involve some tough sledding. Look for some people to book their short term profits here, as well as others who missed their opportunity to get out at the top, to ring the register.
The long and the short of it is - look for the market to retest the 1430 area. If buyers show up and we carve out a double bottom, I expect this market to get some legs.

Uncertainty Enters the Market

With short interest continuing to make new records, sub-prime & a variety of concerning issues have married themselves to investor psychology at this moment. The institutional traders seem to be guiding the market higher, but if we start breaking down here, all bets are off!
As you can see, we have broken a key technical support @ 1540, and are threatening to break another. My guess - the market opens Monday, July 23 looking for some guidance/leadership. Absent any, the markets head lower!