Friday October 1, 2010 - 15:06:53 GMT
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Forex Hound - www.forexhound.com
Weakening U.S. Economy Keeping Pressure on Equities
On Thursday, the December E-mini S&P 500 came dangerously close to breaking sharply lower, but like clockwork, buyers came in on the dip to save the day. For the third time since September 21, however, the market made a closing price reversal top, indicating that investors arenâ€™t shy about liquidating on rallies. This may also be a sign that long-term investors are slowly selling out of their positions.
Fundamentally, it is clear that the threat of additional quantitative easing has been driving stocks higher. This couldnâ€™t have been more evident on Thursday when stocks sold off after the third economic report of the day showed a slight improvement in the economy.
Stocks sold off hard as traders used the friendly reports as excuses to take profits or pare back on excessively large positions.
Technically, the E-mini S&P 500 formed a daily closing price reversal top at 1153.50. This came after price squared time on a Gann angle at 1152.50 today.
The market broke until uptrending Gann angle support from the 1032.50 bottom was tested. This angle move up to 1136.50.
Based on the current chart pattern, the trend will remain strong as long as the market holds a series of bottoms. This uptrend will have to be reaffirmed, however, on a breakout over 1152.50.
As far as the downside is concerned, a break through the uptrending Gann angle at 1136.50 will weaken the bullish outlook and put the market on the bear side of the angle.
A trade through 1131.25 will take out Thursday low and confirm the closing price reversal top. This pattern usually means the start of a 2 to 3 day break of about 50% of the last rally. This makes 1093.00 a potential downside target.
Those who remain bullish after the Gann angle at 1136.50 is broken may have to take heat down to 1117.25, the last main bottom and last weekâ€™s low. A break through this level will turn the main trend down.
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