Talking About S&P 840.

With the magical 1040 level being tested in the S&P 500, many technicians and talking heads are looking at this level as the final step before Armageddon. Running through the various newsletters and blogs, a common theme seems to be that if 1040 doesn't hold, then the 960 level is the last stand before traders get a one-way ticket to test the March 2009 lows of 666. From that point, it's death and destruction to the American economic system as we know it, or so the naysayers would have you believe.

From my perch,I agree that 1040 holds a lot of psychological weight. If a break of this level holds, it should turn many market participants fully bearish and cause a downward cascade that will be difficult to stop. The proverbial line in the sand has been drawn,and the S&P is clawing and scraping at this very moment to remain with its head above this low water mark.

Trying to stay two steps ahead of the action, I roll out the weekly charts to anticipate the next areas of support. I've marked several areas on the weekly chart above that have been battlegrounds in the past. No, these aren't Fibonacci retracements but merely areas where the action stalled as traders, investors, and mutual funds jockeyed for position.

While I've included all of the usual suspects on the weekly chart, it's my belief that the 840 area is often overlooked by the majority of market participants as a battleground. In fact, just looking at the weekly chart, there's not enough information to even cause a trader to pause and consider that level. So let’s roll into the daily charts of that time period and see what we can make of this potential support.

On the daily chart of September 2008 through July 2009. All congestion are right around the 840 level. The truly interesting aspect of this to me is that 840 didn't offer a crisp “one and done” reversal point but instead found itself in the middle of the action for weeks upon weeks. Throughout October 2008, 840 was hit and held several days. Of course, as is the case at the start of any new support levels, there was no way for a trader to even begin to imagine the significance of this level. And even as 2008 came to a close, 840 was bantered around on both sides but was only just beginning to firm up as a key level.

The first two months of 2009 would have been the first time traders might have taken note of how much air time 840 was receiving. Prices seemed to be drawn back to this area like sheet metal to a magnet. When selling pressure resumed and the S&P hit its eventual bottom at 666, 840 was the last area of consolidation. In textbook fashion, 840 once again was an area of consternation and tight play as the S&P bounced off the lows. From there, there was no turning back as the S&P raced to 1200.

Now turn your eyes back to the weekly chart for a bigger-picture view. 840 and 960 may never come into play as the markets could catch a second wind and be off like a racehorse. But if 1040 does relinquish control to the bears, then all eyes will be fixated on the next levels of support. It's my opinion that 840 should be added to the discussion, and that 666 isn't inevitable as we struggle for footing. 960 to 666 is a long step off the end of the plank, but my bet is on 840 being a safety net. So yes, I’d be a buyer of the S&P… at 840.