S&P 500 Forecast From Oct 10, 2011 - Asset Rotation and Market to retest its next support level 1036 ?

Oct 07, 2011 - S&P 500 closed today 1155.46 at which is 24 points up compared to last week close of 1131.42 on Sep 30, 2011. S&P 500 experienced a wild swing of about 95 points between 1074.77 and 1171.40 in the last week.

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S&P 500 Index in Google Finance

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S&P 500 Index in Yahoo Finance

Last Week Analysis - Bear Market Rally and Asset Rotation

S&P 500 experienced a wild swing of about 95 points between 1074.77 and 1171.40 in the last week.

Last Week Low: 1074.77
Last Week High: 1171.40

Looking at the chart below clearly indicates the declining 200 days EMA and 50 days EMA. It means that market will tend to go lower in the long term with occasional bear market rally. In this market, buy and hold strategy would fail. We need to follow the key technical support levels and play with swing trading strategies. Swing trading involves high risks when range bound trading completely broken. Betting on volatility with negative bias would yield a lot in this market. Institutional investors are smartly exiting their long and short positions based on the market condition and keep switching their assets. When treasuries are reaching almost a top level, then institutional investors will exit from the treasuries and t-bills and switch back to undervalues banking and finance sector. This is the main cause of the rally in the last 3 trading sessions.

If you are a long term conservative investors, it is the time to liquidate all of your long position US treasuriesand consider shorting US Treasuries gradually in the coming weeks with a ladder of order.

The collapse in US Treasury prices are inevitable since even with QE3, Fed will start buying only when the treasury prices are low and front running the Fed is not a good strategy in investment.

Currently dollar is the only safe heaven for long term conservative investors.

For Speculators and Intraday Players - Market may retest its next support level (Option Straddle / Strip)

The debt talks, earning season and on going crisis from Euro Zone increased the volatility. Still fundamentally the US market is very week due to unemployment and slumping house prices along with US debt downgrade. Always fundamental wins in the long run.

As we retested this support level 1100+ a couple of times, it is most likely the bears will control the market in the coming weeks to take it below 1100 that would be 1036.19 set on Oct 30, 2009. S&P 500 went went below 1100 last week and it is the low point for the last 52 weeks. S&P 500 was trading in bear market territory for two trading sessions in the last week.

Only if you are day trader, you can have the two following options:

1. Buy 1X times of (OTM) call options and 2X time of (OTM) put option - known as option strip.

2. Buy 1X time of call and 1X time of put option with the same strike price - known as option straddle.

Note: OTM - means Outside the money.

Technical Indicators

10 Days EMA: 1149.25
21 Days EMA: 1159.20
50 Days EMA: 1187.87
200 Days EMA: 1240.77

Next Resistance Levels:

strong resistance level at: 1187.87 set by 50 days EMA
strong resistance level at: 1240.77 set by 200 days EMA
strong resistance level at: 1386.95 set on Mar 16, 2007
strong resistance level at: 1433.06 set on Aug 03, 2007
strong resistance level at: 1440.70 set on Nov 23, 2007
strong resistance level at: 1453.55 set on Sep 07, 2007
strong resistance level at: 1,530.23 set on May 30, 2007 (first closing high after dot com bubble)
strong resistance level at: 1,552.87 set on Mar 24, 2000 (all time high during dot com bubble)
strong resistance level at: 1,565.15 set on Oct 09, 2007 (all time high during housing buble before sub prime crisis)

Next Support Levels:

strong support level at 1119.46 set on Aug 08, 2011
strong support level at 1189.40 set on Nov 26, 2010
minor support level at 1064.59 set on Aug 27, 2010
strong support level at 1022.58 set on Jul 02, 2010
strong support level at 1036.18 set on Oct 30, 2009
strong support level at 946.21 set on Jun 12, 2009
strong support level at 827.37 set on Sep 27, 2002
strong support level at 683.38 set on Mar 06, 2009
strong support level at 638.73 set on Jul 19, 1996 - Might see this number again when completing double dip bottom