The last two days have been pretty intense and we are in the midst of a correction. Now the buzz is that the Obama administration is proposing more regulation on financial institutions to remove risk and cut down on “too big to fail”. It kind of sounds good, but it brings to much uncertainty, and that is way there is fear on Wall Street, just my 2 cents.
Yesterday the S&P broke the sideways channel support, falling to my next support point of 1114. 1114 is a very important place to hold if the bulls want to take back the gains. 1114 is also where the 50 day moving average sits, a break of that would be a sign of further weakness. But I don’t think we will hold, fear is a strong emotion and with a lot of fear in the investment world the odds of a pullback/correction has a higher probability of happening. Especially since traders have been expecting one, profit taking is most likely the case for weakness. This brings me to my next support level, 1085. 1085 is the bottom of the channel made from November 10th 2009 till December 21st 2009. That is also roughly a 5.50% pullback from the 2010 highs. 1085 is not out of the picture yet as a target, but we first need to violate the 50 day moving average.
Also volatility could continue to hit the market, I added to my long Vega trades and will not set any more credit spreads until I think we have touched bottom.
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