Is The S&P Finally Burning Out?

If you look at a chart of the last decade as shown above, there were two tops toward 1600 S&P that were toppled -- quickly.

At the highs, few were looking for the things to change so abruptly. Few identified the lows. Much of the Street is now convinced that it's 2003 all over again while you could hardly find a bull in March of 2003.

The bullishness is so ripe that you'd think we'd captured at least 50% of the decline. In fact the popular averages haven't even revisited the scene of the crime from one year ago. Rather they're exactly where they were eight years ago after the bounce, après le deluge, on the close of September 2001, 1040.

The market has a memory. The bears are haunted by the specter that it may be 2003 all over again. If it is, the bulls may be ahead of themselves. Why?

Well the first leg up off the March 2003 low was 374 points. A similar 374 points added to the March 2009 low gives 1040. As you know from the Square of Nine Chart shown on 11/9/09, 1044/1045 "vibrates" off the date of the March 6 low and opposite the current time period

Usually new high recovery weeks end with the indices closing on the high of the week. It they don't close at/near the highs of the week, it may be indicative that the market is burned out. But the S&P needs to break and close below its 20-day moving average and follow through to confirm the significance of 1044 .

The market has a memory. The S&P could still kiss the 1050 level, but as the monthly chart shows, risk is high with 1056 equating to a Fibonacci 38.2% retrace from the 1987 crash low.

Many of you familiar with these reports know that the Thursday the week before options expiration is what I call Misdirection Day. The Thursday the week before options expiration is when the new SP futures are rolled out (in this case December) and often the arbitrageurs want to catch the Street long and wrong. The bottom line is that if the market is up nicely the Thursday before options expiration, it often indicates a strong downside bias into expiration on Friday of the following week. Consequently, selling pressure that breaks above mentioned support levels should be respected.

In addition, drawing a Live Angle from the high in 2000 and the test high in September 2000 through the Low before the High going into the July 2007 high comes in at current levels as well in the S&P.

I suspected that a test of the 950 level is in the cards.