Landing Zone

Had a brother at Khe Sanh
Fighting off the Viet Cong
They're still there
He's all gone
--Bruce Springsteen

Short term traders have staked out SPX 1040 as the front line where bulls and bears are currently doing battle. With such focus on a granular level, it is often helpful to elongate the time horizon for better forward-looking perspective.

When looking at multi-year price behavior on a weekly basis, we can see that we've had multiple lows touch the 1040ish level over the past 10-12 months. An axiom of technical analysis is that support gets weaker with each test. Including today's close, we been down to this level 5 times in 2010 alone. As such, chances that a bearish resolution to the current battle seems pretty high--certainly higher than previous squirmishes here over the past coupla months.

Should this level be decisively breeched, then it appears that 950 becomes the next broad level of support. That's about 90 handles lower from here.

From where I sit, SPX 950ish seems a reasonable place to re-evaluate risk/reward--for both disposition of intermediate term short positions and adding long side exposure for a trade.

Rest assured, however, that this LZ will feel plenty hot, particularly if we should happen to arrive there sooner rather than later...

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