SPX: Contesting the middle of the channel

yoy_158

October 26, 2009 Mon 11:18 AM CT

With last week's downdraft, we might have an impression that the rally in the S&P 500 is in trouble. So far at least, that is not the case. As we begin a new week, the last bar on the weekly chart is the action so far today.

The linear regression slope, the yellow line, was touched today and subsequently bounced. In the prior week, we had seen the index reach the upper band, drawn three percent above the linear regression slope. It then retraced to the linear regression line. Though the action may have seemed negative, the move down did not even break the middle of this channel. It would have had to do so on the downside, at the 1052 area, before the uptrend would be in real peril.

As we move through the rest of this week, the bulk of earnings will be out of the way by the time the week draws to a close. The key for the bulls will be moving the index back up to the outer band, which is now at 1120.59. At the very least, the index will need to be above the linear regression, at 1087.96. The bears need to press and break 1052 this week if they want to see downside acceleration. Otherwise, the rally remains intact.
By: Bryan McCormick