Focus on Near-Term S&P Valuations

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheLFB-Forex) -- History reveals that the near-term chances for a rally into year-end on equity indices trade is high. The chances are that an oversold rally will be in response to any news sound-bite that houses even just a glimmer of hope the EU debt may be contained.

Whether the market can sustain a rally that moves into 2012 is of little importance as attention turns to the daily balancing of risk, rather than the long-term investment potential.

The focus is squarely on the near-term S&P 500 valuations and whether values can get into the green for 2011. If US 10-year Treasury values break and hold above 131.50 the chances for an equity rally diminish substantially.

Technical Wave: Testing both support and resistance in equal measure in a mid-term sideways chop that is moving around the Jan 2011 opening prices.

Overlapping and volatile price action is struggling to find fair value each day, outside of knee-jerk reactions to breaking headline news or regional markets opening and closing. The latest surge higher in response to central bank intervention pushed prices off summer 1997 ES valuations.

Buy Support: Bullish traders will be looking to buy the short reversals to 1215 (the 38% Fibonacci retracement of the move lower from 1295 to 1145), which could then target 1175 and 1205.

Sell Resistance: Bearish traders will be looking to sell any moves that fail to break the 1205 area (the 38% Fibonacci retracement of the move higher from 1145 to 1265), which could then target 1225 and possibly 1250 again if financial outlooks improve.

This Week: Accept that news-headline related moves are dominating technical potential, and that the already high average daily trading range is likely to continue moving higher, creating further volatility.

In 16 weeks the S&P 500 has made 16 consecutive moves up and down that averaged 10%, on the back of a daily trading range of 3.3%. Danger signals are flashing, with most initial break-outs being quickly returned to their starting point. The fact that S&P500 values are below December 1998 levels confirms that buy-and sell trumps buy-and hold.

>To order reprints of this article, click here: Reprints