Rejected Again

The S&P once again tested the 950 level and could not break much above it let alone finish above it. This is the third time this has happened. I have heard the opinion that 950 on the S&P has no real significance in terms of technicals and here is my take on it:

What creates support and resistance levels to begin with? Psychology of the market place creating excess supply or excess demand at levels it deems appropriate. We should know by now that people like round numbers and gravitate towards them, it happens on an intraday one minute time frame as well as broad market. Is there any reason 950 should serve as resistance? Not necessarily, but if people pay attention to it, then it matters. It is the same reason fibonacci lines sometimes work. There is no reason in my mind for fibonacci's to work other than once people pay attention to them they become a self fulfilling prophecy (general trading rules may play a role as well but that's a story for a different day). So, 950 could be a target for longs to sell, a target for shorts to sell, a level where fundamentals are now suddenly not inline with prices and P/E's are too expensive. I don't really care the reason, all I notice is that the price action around that level is being paid attention to. The other interesting thing is that we have been in a range from 930 to 950 for almost a week now, which generally means a break is coming in one direction or the other and once it does it could be a big move in a single day and determine our direction for the next couple weeks. If we break to the upside I'll scale out of the puts and get a little longer, if we break down I'll get bearish biased for the time being.

There was an odd divergence today with Solar stocks lagging as oil was hitting new highs which has me concerned about my WFR position but also the energy/commodities plays in general. My guess is we hit a temporary top in oil at 75 dollars which could be a head wind for materials and energy. Natural gas finally had a lower than expected build and I would like to see that continue and that could be the next good trend to ride. WFR was the only real laggard today which kept my account down. I did notice Visa appearing to break its uptrend finally after a false break out which could be a good put opportunity. Since the market remains unconvinced on a direction so do I and I will continue to sit on my hands until it makes up its mind.

With a week left until expiration I may look to sell some premium going into the weekend depending on what happens on Friday. My only short option position on NVAX is annoying because it is traded by largely uneducated speculators in my opinion which means as unrealistic as I thought hitting 5 dollars was when it was 1.80, it just may happen.

Total Return for 2009: 158%