Securities Research Services

Friday, April 25, 2008

Prices Likely to Rise Into Month's End; Then What?

Yesterday we noted that the odds were roughly 50/50 for a price turn higher out of the current trading range. After yesterday's session where bulls remained in control for most of the day, the probabilities for a run at higher resistance in the $141-$142 area have now significantly increased.

We had mentioned that shorts were likely a bit early last week when they were expecting the $137 resistance area to hold, given the magnetic-like potential of the falling downtrend.

So, the near term trend, while still a bit sideways, is likely to resume higher as we move into the end of the month when window dressing forces help raise prices.

Bulls continue have a significant problem longer term, however. Volume patterns continue to rise during declines and continue to recede during rises. This latest rise into resistance has been no different as you can see from the weekly SPY volume chart below:


Our recommended position continues to be to short SPY into strength. We recommended earlier this week to open only a partial position with the intent of averaging higher should prices rise into the downtrend resistance area.

Currently the downtrend line rests at $140.80. Under the right conditions, should a panic buying event take off, it is possible that the downtrend will be temporarily breached as prices reach higher to tag the 200-day simple average, currently trading at $142.50.

This area between $140.80-$142.50 continues to offer a high probability shorting opportunity should prices rise into it.


Near term, prices are expected to move higher. Longer term (once end of the month window dressing is in the rearview mirror) prices should turn significantly lower. Buyers in the current area are assuming an enormous amount of risk.

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