NetApp Takeover Rumors Stir Options Pot

S&P 500

By Bryan McCormick, analyst at OptionMonster.

As we close out this difficult year, something very interesting is starting to happen in the S&P 500 (SPX.X Quote) that is going to be important in 2009: We are not going far to the upside or downside in price.

More important, we are bound at this rate to break the longer-term downtrend line in place since October. This will happen more through time than price.

What does that mean? Well, if we think about a downtrend line as losing value with each passing day, this makes sense. That is in essence what a downtrend line is; it has a lower value for each day that goes by.

Therefore, if price stops going down, over time you will just plow through that line. That is what is happening right now.

At the same time, however, we are not seeing much of a drift up in price either. Instead, trading in the last week has meandered in a horizontal range. In some respects, the index is coming into some form of price equilibrium here, awaiting a catalyst to move it one way or the other.

As we head into the New Year we are going to get that catalyst in the form of the next earnings season, which begins in earnest in the second week of January. We also have the presidential inauguration, a new administration, and a host of new prospective stimulus plans that may be quickly launched.

All of that will be happening at the same time, which will make for some very interesting crosscurrents.

On the one hand, earnings are likely to be awful. On the other, there may be a substantial amount of hope generated around the various initiatives contemplated by the new White House. That could lead us back to some more wild rides where price is concerned.

For major support, the 850 area appears to be important once again for the S&P 500. That is pretty much near the low of the current range of the last week. A break below this level would put us back under the downtrend line but would not break the horizontal range.

Any substantial move above 900 would be bullish, leaving the downtrend line further behind each day that level can hold or be built upon. But we will have to wait for earnings season in all likelihood to see which way we will head for the coming quarter. Traders will likely not let price move to far up or down until we have greater clarity.