Needless to say, we've had quite a down move off the Highs in the 1147-1148 area, which now feels like it was such a long time ago. This looks and feels like more than just a normal correction (can the word normal even be used when talking about the market), but lets check out the Monthly chart of the S&P 500 Cash Index ($INX) to see if we've seen this before.
S&P 500 Cash Index Monthly Chart
Looking at the Monthly Chart, January 2010 looks very similar to July 2009. The High in July 09' hit the 61.8% Upward Range Extension from June, 09' and the July 09' Low was right around the 27.2% Downward Range Extension. January 2010's High went a little beyond the 38.2% Upward Range Extension from December 09' and the Low was a little above the 27.2% Downward Range Extension. Now we come to February, and the similarities end because August 2009 was an Up month. This allows us to entertain the possibility of a Change In Trend. So far, the Lows made on Friday fall right between the 27.2% and 38.2% Downward Range Extensions from January.
Now lets zoom in on July 2009 and see how the Daily chart played out. Perhaps we can gain some clues for next week.
S&P 500 Cash Index Daily Chart
We can see that the Low of Month in July 09' was made early in the month, on Tuesday 07/08/2009 (7-8-9, ha just noticed that). The following day (Wednesday), price consolidated in the upper 50% area of Tuesday's range. On Thursday, we saw a 61.8% Range Extension to the downside and we were off to the races with a steady up-trend afterward. Based on this script, the coming week could very well indicate the direction for the next few months.
Now lets zoom in on the S&P 500 Futures Volume Profile chart and examine Thursday and Friday to see how much damage was (or wasn't) inflicted.
ES Day Session Volume Profile Chart
On Thursday, we clearly see a strong push by the Other Time-Frame Seller right from the open, with a Close near the Low of Day. Friday, on the other hand, majority of the day's volume occurred in the upper half of the day's range and we saw Responsive Buyers (or Shorts covering their positions) active in the low 1040s (as anticipated). If this is indeed a pullback, within a larger uptrend, I would anticipate Friday's Low to hold. Bulls should be defending that area, so expecting rotation in the low 1040s makes perfect sense to me. Ideally, prices on Monday should remain above 1050 for me to put any confidence in a Bullish scenario.
Mark Twain said "The past does not repeat itself, but it rhymes" and I'm just looking for some possible clues here. I realize this is very basic analysis, and hardcore technical analysts could very well be laughing at me right now. I can live with that. Enjoy the rest of your weekend -- I'm going to get back to writing papers for U.S. History class now.