I agree with 220's interpretation of the resistance at 1540. As 220 pointed out, the plot shows that in the 1540 area we are at an all-time numerical high. Even though this is not the all-time high in discounted dollars, and the S&P has changed in the meantime, this numerical high is a very strong psychological resistance point. We made two subsequent, attempts to pierce this 1540 level, each failing with a slightly lower high than the previous (a warning). We eventually pushed up to 1555 on less volume then we had on the 1540 peak. After hanging out at the 1550 area for about 1 week we began a precipitous fall on high volume. If you blow up either chart with your charting package you will note the striking change in character in the S&P index subsequent to the Morgan Stanley warning early in June.. or thereabouts. Note that while two lower highs are being made there is a very noticeable increase in volatility. For longer-term investors, the two failed attempts to pierce 1540 ,making lower highs each time, the eventual 1555 maximum on lower volume, and the increase in volatility, at the same time as the Morgan Stanley warning were all warnings to be especially vigilant and ready to act at the first sign of trouble, and to begin hedging long positions that could not be unloaded quickly if needed..
THe Wallace post very nicely shows the S&P price channel. The strongest support line is not the one passing through the Feb low, but rather the line above that, that passes through more points. This line shows that there could be expected very strong support at the channel bottom in the area of 1475-1480. That is what we saw as the market came down. We are now, as of the close today, seeing a piercing of this support level to the downside. Any further down from here is strongly indicative of a further fall in the market. Given the large volume, and consequent large momentum, and rapid rate of the decline we have seen this past week, a lasting rebound is of quite low probability. Long term investors should avoid buying at this point thinking that the bottom has been reached. The smartest course is to let the market show us how far down it wants to go, and then wait until at least a solid bottom has been put in. Patience here is important. The next level of support (weak) is in the area of 1375, then there is not much in the way of support all the way down to the 1260 were there is good support and even better support a little lower at 1225, where we will very likely head, but how long it will take to get there is very uncertain so patience is of the essence.
Traders can of course take advantage of every move in the market regardless of direction. In my investment accounts I went to cash right after the 1540 top was made, and the Morgan Stanley warning was issued. I am thoroughly enjoying trading the drop at present. Good luck to everyone. I hope you did not get caught on the wrong side of the market.
p.s.: note that the steep drop in the ten-year (TNX) interest simultaneous with the market collapse was due to money coming out of the market and going into bonds. There was a similar move in TNX in the Feb. plunge, but this time around the drop in TNX is steeper and deeper suggesting to me that this time around there is greater conviction that we are really headed lower. Be careful, however, because when there is this much short interest there is always the possibility of a short-lived but steep reversal, flushing out some of the weaker shorts..
