By Mike Paulenoff, MPTrader.com (www.mptrader.com)
Here is the look of the S&P 500 (SPX) after the close of Monday's trading, which shows the very deep retest of last Thursday's low (about a 1-point difference as of the close). If the SPX is weak during the first hour of Tuesday trading, then a break off 1235.18 will point the index towards 1229-1228, which represents the 62% Fibonacci support level of the October-May advance.
Right now, my suspicion is that a new reaction low will NOT be confirmed by the RSI, and will represent the second unconfirmed new low in the past week. That creates more compelling conditions for the emergence of a powerful rally than existed last Thursday.
If such a scenario should unfold, we will be looking for the selling pressure to dry up quickly, and a very powerful rally to emerge.
Let's also be aware that Fed Chairman Bernanke speaks tonight on "Bank Supervision" at the American Bankers Association Stonier Graduate School of Banking Distinguished Speaker Program in Washington, D.C. at 7:30 PM ET. Under the circumstances, he could actually say something that makes a positive impact to the markets... in the aftermath of a series of comments by the Fed Heads that have crushed the equity markets. Or he could continue to press his concerns about inflation, and risk another plunge.
The technical condition of the market is telling me that if Bernanke says anything of consequence, it should be well-received by the equity markets, and not a cause for panic.
See the SPX chart below ... and have a prosperous trading week!
Mike Paulenoff is author of the MPTrader.com ETF Trading Diary (www.mptrader.com), a real-time diary of his technical analysis on equity markets, futures, metals, currencies and Treasuries.