Wednesday, November 17, 2010

A Cluster of Support

Last week in Looking for SPX Support Levels, I introduced a chart which highlighted two areas in which stocks had traded in a narrow range for about two weeks before breaking the deadlock and moving higher. I referred to these two areas as congestion areas and highlighted them in red ovals in the cart below.

The higher of the two congestion areas, which spans roughly SPX 1175-1185, represents what I consider to be the first of two tipping points. Last week I described 1175-1185 as a “line of demarcation between a minor pullback and a bearish counter trend.” So far this area of congestion has managed to muster sufficient support to halt the decline, but has yet to inspire enough buying to turn stocks back upward.

The chart below updates the two congestion areas through today’s closing data. Note that the 50-day moving average of 1167 is about to come into play as well, even as technical factors take a back seat to issues in Europe and China.

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