Textbook

The day started with the typical Monday-morning bounce, but we then ran into obvious overhead resistance on the S&P500 at 1,108, which is the 200-day simple moving average. Everyone and their brother is fixated on this level. The tricky thing about it was trying to figure out whether it would serve as a contrary indicator, because it was so obvious to so many, or end up being a self-fulfilling prophecy.

At the end of the day, the answer was that enough market players decided 1,108 was a good enough level to do some selling, so it ended up working very well as a resistance level. This was textbook action. We bounced on late volume the last two days and were then turned back right where it was to be expected. It was almost too perfect, especially after a year of action in which technical levels had any real impact.

So, now that the bulls have been turned back, the issue is whether they can regroup and make another run at that 1,108 level. The good news is that the more often a level is tested, the more likely it is to fail, but the problem is that we need to find some underlying support before we can start talking about another upside attack.

The intraday reverse and the close at the lows suggest we will have some more weakness in the near term. We have some support at 1,075 and then a major level at 1,050. I would not be at all surprised to see some trading-range action here while we build up a base of support for another run at the upside.

It is a muddled action with a negative bias and is supportive of small positions and short time frames.