Sunday, May 4, 2008

The battle begins

The S&P recovered the 1400 level last week and that's a plus. Now however the real battle begins. 1425 is a major line of resistance as you can see. It acted as support from Aug. till Jan. Once the bulls finally gave up it has acted as resistance. This is going to be the least risky area for the bears to defend as stops are very close. Vice versa this is going to be the toughest area for the bulls to break through as risk is much greater. I suspect part of the reason volume has been so light is many institutions are not willing to get aggressively long into this line of resistance. This would explain the lack of buying pressure on the Lowry's studies.

I'm going to be watching the TOMO, TIO and TAF auctions in the coming weeks. Since Oct. the level of temporary loans has risen from 40 billion to almost 300 billion. The Fed is flooding money into the system. Will this be enough to push the market thru resistance? I don't know. It appears that they are willing to print how ever much money it takes though to accomplish the job. With oil bouncing off $110 support they still have an inflation problem though. So do they risk spiking oil even higher to inflate the market? Long term tenet #1 says that yes they will.