Last week the markets lost ground as the major indexes gave back 4%. Today I want to look at the S&P 500 index to see what if any potential exist short term. As you can see on the daily chart the last five weeks have been spent building or establishing a base. This base could possibly be the bottom everyone wants, but for now we will have to be patient and see how it plays out. The short term downtrend line was broken on the move to 1000 last week. There was also positive momentum in the short term moving averages as the 10 day (pink) is attempting to cross above the 20 day (blue). The two day sell off brought some doubt back into the index short term. We ended the week with a rally and thus some hope for this week’s trading.



The futures are higher on the news China has joined the government sponsored spending programs, announcing a $500 billion stimulus package. The outside news is a stimulus, but not likely one with lasting impact near term. Thus, how do we play this chart? The first move needs to clear the 950 mark and then resistance at 1000. Last week I posted a piece that stated my target was 1100 for the S&P 500 index and that still holds for now.

If you like short term opportunities a close or break above 950 would be the entry point. The exit/stop would be 920. The target would be 1100 with the expectation of resistance at the 1000 mark. From a longer term perspective I would wait for the break above the 1000 mark with momentum and expect a run to 1200-1250. The key to playing taking any plays in the sector would be to have a disciplined approach. As you can see in my comments that includes entry point, exit point and a target. Volatility remains in play short term so be aware of your surroundings.

Jim Farrish, founder and editor of Melbourne, Florida-based SectorExchange.com, writes regularly about sectors and speaks widely about investing and money management.