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!

It's as if we are following a script

Since the SPX fell thru it's trendline on May 24th, then crawled up the underside of said trendline, then sold off to solid support @ 1490, rose almost 50 points (nice trade!) to what could be anticipated to be stiff resistance @ 1540, and finally stabilized (temporarily?) today by holding on to it's support @ 1510 - you couldn't have scripted this any more logically. And that is what anyone long this market has got to be worried about - the market doesn't follow scripts well.
Tomorrow, Friday has the potential of telling us a lot about the next few weeks/months in this market. I expect we will see some momentum be established one way or the other. Will the bond traders impose their will on the equities markets or the other way around? One or both of 2 things will start what could be a sizable correction - the 10 year taking out 5.25% with authority and/or crude taking out $70/barrel with authority. Otherwise, we probably drift sideways for 3 weeks until Q2 earnings get rolling.

We are pivoting on the 50 day moving average.

The S&P is using the 50 day as support - many institutional traders mark the 50 period as a line in the sand. If we get a significant close below, I think there could be a rush to trim back positions.
That being said, just don't get a sense that this is going to much of a pullback - certainly not the BIG ONE, the 10%er that US markets haven't seen in a dog's age.
Nor do I foresee many investors jumping into bonds - that would be like standing in front of a moving freight train at this time. You don't look to buy bonds until interest rates have nearly peaked. Bonds purchased today will just lose money till then.
So perhaps it is nearly time to pull out the old fibonacci generators. A quick calc puts a 61.8% pullback of the move since early March at about 6.5% overall. Let's call it the "Pause that refreshes".
If you aren't hedging, I don't think you can succeed long term in this market. That is to say, if you aren't buying puts (hopefully with the money you made selling calls) or selling futures (the e-mini is a fabulous vehicle), I think the pros are going to eat your lunch, and maybe your breakfast & dinner too!

A Retest is inevitable

The S&P is stalled in the congestion area around 1510. Look for a retest of the recent lows @ 1495. Seems a sure bet that no serious buying can occur unless and until we have bounced from there. Lots of key economic data this week as well as the brokers reporting - this market seems poised to head lower and any excuse will do. Muted earnings outlooks by GS, LEH, BSC (i.e. a slowdown in M&A activity) could be such a catalyst. For now, we are short-term oversold on the index and still bouncing up. Expect some buying that could get us up to 1525 or thereabouts and then Whammo! - bears move in for the kill.