Low and behold, we talked just the other day about the fact the S&P 500, despite its recent swoon, continues to maintain its near-term trend support back at roughly 1,600…which is just about where we find ourselves now. As I said in the TEI Insight piece, “For many, this is yet another retrenchment move and 1,600 or thereabouts represents a great opportunity to load up more on the long side before the next assault leg to new highs.”

Well, it would appear that in the coming sessions we are going to find out if those that hold that opinion are correct in their assessment…or if in fact that is wishful thinking. With the INDU losing 15K on the close Wednesday (June 5), there are lots of nervous peeps out there wondering if now might not be time to head for the exits…such is the fair-weathered nature of the bandwagon.

Fact remains that 1,600 for the SPX is the near-term level to monitor regarding direction on the market. If that level falls and fails on a retest, then we can get serious about talk of a trend break and start to have some confidence in shorts of a sustainable nature.

How sustainable?

Well, as the daily chart illustrates, there are certainly a fair number of stopping points along the way, but the truth is the downside target is the 1,535-40ish level. From there, well, I stand by what I stated in the Insight piece, “A failure there and we are looking at more than retrenchment…suddenly the reality of correction is at hand – the 1,518 level represents a 10-percent slide from the intraday record high.”

More ominous would be a fall below 1,500, as demonstrated on the monthly chart:

While 1,500 is a key technical/psychological level, the reality is that just below at roughly 1,450ish, there lies the balance of power for control of the longer-term outlook for the market. That spot on the map marks the primary support level of the recovery channel dating to the ’09 breakdown low. There’s no overstating the significance of that level and what a break would represent! To most, such a failure would signal that the BULL IS BROKEN…the recovery channel has imploded.

To be sure, there is a key secondary channel line drawn off the ’09 low and the 2011 low (itself the test of the 2010 flash-crash low) which sits back at roughly 1,350. That level is very significant because it happens to represents exactly a 20-percent correction from the intraday record high of 1,687.

IF….big big big IF… we found ourselves wondering around in that neck of the woods, you can be sure the bandwagon would have long-since jettisoned its load and that the smart money/deep pocketed folks would be in the process of quietly sniffin around lookin for bargains amongst the blood-stained, abandoned rubble.
But that is but a sweet, far-off dream for the bears at this point… Some would label it a dream of another sort…

Let’s bring it back to reality for now. Best way to do so is to provide some perspective, if you will. We talk about the trend being with the bulls, a fact that is indisputable… when considering the 2009 to present period. But when we broaden the picture to a longer horizon, as I am oft to do… Well then…

Hmmmm……. Makes you wonder just who sits at the Throne of Power…and where this thing is headed…..

We shall see!


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