I was looking at the S&P 500 chart today, and I saw something rather worrisome. That is, the distinct possibility that the recent fall from about 1,390 to 1,330 was a retracement in an otherwise bullish pattern that has been forming for the past 10 weeks. The "worst case" scenario, as I look at this, would be for the market to push its way past the 1,390 level in what would be a very handsomely-formed inverted head and shoulders pattern, pushing this index up to about (gak….) 1,520! I am not saying I think that's anything better than an outside possibility, but the wise trader has to look ahead toward unpleasant scenarios in order to be prepared.
Of course, what has me wringing by hands is the earnings report from Intel (INTC) which, instead of being another indication of a plunging economy, has actually been received with open arms. As I am typing this, INTC is trading up over 7% on strong after-hours volume. The NASDAQ 100 is trading well over a full percentage point higher after hours, and the other broad indexes are up as well (although not as much). Unless the bevy of economic news that arrives before Wednesday's opening bell is a zinger, it's likely to be a strong up day for the bulls.
The Intel chart itself is not, by itself, particularly bullish looking. It is trading at about 22.16 as I am typing this, which is near the high points reached for 2008. There's a heck of a lot of overhead resistance between this level and $28, however.
A look at the more general $SOX index is far more bullish. I've pointed this chart out several times before, since it's one of the few general index stocks that I watch which has seemed to be hammering out a nice bottoming pattern. Today's candlestick pattern only strengthens the case. If there was a good way to buy call options on the SOX, I might have.
I haven't looked at all the components of the SOX to see what might pop tomorrow, but KLAC seems like a good candidate to follow INTC's blast upward.
Of course, the index that will benefit the most is the index which has the much to gain from INTC's weighting, and that would be the NASDAQ 100. The "worst case" scenario would be a push above 1,900. That would, to me, kill any chances of a bear market anytime soon. Unless we crack March's lows, we'll just be wasting our time waiting.
Let's look at the S&P 500 again, but this time on a daily basis. The red Fibonacci lines you see are some carefully-selected levels from the Fibonacci retracement drawn from the peak in 2007 to the low set in March. As you can see, both yesterday and today the S&P was clinging tightly to the level around the 1,335 mark. A real show of bullish strength would easily kick this back up to the 1380-1390 range, which has been tested (unsuccessfully by the bulls) no fewer than three times already this year.
I'm going to end it here, but I'd like to suggest you watch the following video clip. I saw The Gods Must Be Crazy when it came out (nearly a quarter-century ago, incredibly) and found it completely charming. This is the first fifteen minutes of the film, and it is simultaneously a pleasure to watch and – if you're the sensitive mush like me – somewhat heartbreaking. I, too, fear "the evil thing."
