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Schaeffers Monday Morning Outlook

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What the Trading Desk Is Expecting: Trading Range Reminiscent of Late 2009
By Todd Salamone, Senior Vice President of Research

“The 3.8% decline from the S&P 500 Index’s (SPX) 1,225 closing high earlier this month pushed the SPX down to its 40-day moving average, which coincides with a former area of congestion from mid-to-late October. As we move into a holiday-shortened week, this area is potentially supportive if another pullback occurs… Longer-term resistance levels still reside just above last week’s SPX close, which could continue to put a lid on the market. Specifically, the round-number 1,200 level – an area of congestion in 2005 – the 80-month moving average at 1,206, and the 1,230 area, site of the 61.8% Fibonacci retracement of the 2007 high and 2009 trough, could collaborate to cap the market’s progress… With retail investors pulling cash out of domestic equity funds for 28 consecutive weeks, it is the under-invested hedge funds that have the capability to drive significant rallies. Without more support from this crowd, the market is exposed to the mean-reversion games of the high-frequency traders, especially with the defined areas of support and resistance as discussed above in play.”
–Monday Morning Outlook, Nov. 20, 2010

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