Entered The Pull Back Zone

The SP500 has experienced four consecutive down days, and today it has entered the pull back zone between 1600 and 1800. The critical level for the SP500 and other major market indices in the near term will be their 50 SMA. If the SP500 does not find support near its 50 SMA, then there is a high probability it will retrace back to the 1125 to 1130 level (which is also near its 200 SMA).

The financial EFT, XLF has penetrated its 50 SMA intraday today, and the technology ETF, XLK is closing in on its 50 SMA. If the financial and the technology sector unable to find support near their 50 SMA, then most likely the SP500 will decline to the 1125-1130 to test for support.

One positive catalyst for the market this week is GM’s IPO. From the latest indication, the pricing of GM IPO will be above the initial price of 26-29 due to high demand for the shares. The debut of this IPO could provide some positive sentiments to the market on Thursday.

Although the SP500 is down more than 19 points or 1.6% today, but things appear to be stabilizing and/or turning around near the close. I will not be surprise to see some sort of short term oversold rally tomorrow. As far as trading goes, I will remain patient and wait until support has been established for this pull back before opening any new long positions. In the meantime, I will continue to do quick trades with reduced size (no holding period of more than 2 days).

SP500:



XLK:




XLF: