Analyzing the S&P 500 and a Video on GOOG

We have now had a weekend to think about things that happened in the market last week. There is no doubt that the market as a whole is correcting. The only questions are how much of a correction should we expect and now long will it take.

In Friday's post I shared a video featuring Adam Hewison's analysis of the DJIA. Today, I have another video from Adam with his analysis of Google.

Watch Adam Hewison's Analysis of GOOG

Now, GOOG is a big stock and a Wall Street darling. You may have a position on GOOG, but if you watch the video I think you'll be reconsidering it if you're long.

Adam isn't the only guy looking at the market, however. I've got my chart up, too!

Let's talk about the S&P 500.

Tuesday, Feb. 27th - Before the sell off, we had hit our high just above 1,450 and Monday close a whisper below that level; 1,449.37.

Tuesday's sell-off thumped hard on support at the 1,400 level as 50 points evaporated in the heat of the day's selling. That's a big deal, because 1,400 was our first Fibonacci retracement level. The 50-day moving average was a blur as the market blew past it within the first two hours of trading on Tuesday.

The most important thing you can discern from Tuesday's price action is that this was not the small investor getting nervous. It takes institutional selling to achieve these kind of moves. The "smart money" decided it was time to get out.

Why get out?

Oh, we could talk for hours about inflation, interest rates, slowing economies, the Chinese government, corporate earnings, yada, yada, yada... Look, don't try to find reasons for the selling, just acknowledge what you saw on Tuesday.

The big money decided it was time to get out....

Wednesday, Feb. 28th - Hey! We were up. The price action was unimpressive. The institutions were not behind the buying. But, we closed higher.

Thursday, Mar. 1 - The market could not hold its modest gains from the day before. The market closed lower.

Friday, Mar. 2 - The sellers were back.

What's going to happen now?

Well, no one knows for sure. The best we can do his talk in terms of probabilities. My guess is that next week will see the market move lower. Support should come in between 1,370 and 1,361. Ultimately, I'm looking for the market to hit 1,342.

The good news is that as option traders we're not wed to bullish trades. We can get bearish, or market neutral, just as easily as we can go long.

Tomorrow, I'm looking for some bearish credit spreads.

Christopher Smith
TheOptionClub.com