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TECHNICAL ANALYSIS


S&P 500 Index Testing Key Support

04/30/04 10:02:30 AM
by Kevin Hopson

The S&P 500 Index has pulled back to significant support, which may provide a good buying opportunity in the near-term.

Security:   SPX
Position:   Hold

The S&P 500 Index (SPX) has been pulling back the last few weeks after putting in a recovery high early this month. Looking at the nine-month chart, you will notice that the index is currently testing key support in the 1100 to 1120 range. For example, the bottom parallel line of the green pitchfork comes into play just under the 1120 level.

The index looks to have formed a bullish flag pattern, as illustrated by the black trendlines. This is basically a falling channel formation after a steep run-up in prices. Since bullish flag formations tend to be continuation patterns and the prior move was up, the index may look to rally in the near-term. Also, the bottom channel line of the flag formation has converged around the green uptrend line, making the 1115 to 1120 range a good area of support.

Graphic provided by: Stockcharts.com.
 
If that is not enough, the 61.8 percent retracement level from the March low to April high currently comes in around 1111, and the largest amount of open interest in the front-month May options contracts currently resides in the 1100 strike puts. Since the sellers of these puts would benefit by the contracts closing out-of-the-money on expiration day, there will be incentive to keep prices above the 1100 level in the near-term. As a result, the SPX should find significant support in the 1100 to 1120 range. If you are itching to go long, this might not be a bad place to do it.



Kevin Hopson

Kevin has been a technical analyst for roughly 10 years now. Previously, Kevin owned his own business and acted as a registered investment advisor, specializing in energy. He was also a freelance oil analyst for Orient Trading Co., a commodity futures trading firm in Japan. Kevin is currently a freelance writer.

Glen Allen, VA
E-mail address: hopson_1@yahoo.com

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Date: 04/30/04Rank: 5Comment: 
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