- Technical Analysis -

October 23, 2009 (FinancialWire) (By Frank Kollar) — Both the S&P 500 Index (SPX), and its tracking ETF the S&P Deposit Receipts (NYSE: SPY) pulled back mid-week sparking several analysts to write that a correction was under way.

Though the stock market may be over due for a correction as well as overbought, this is a momentum rally and no one can know how far a momentum rally will rise. They get their fuel from emotions and bulls will trample each other right to the final high.

Thus Thursday’s early morning sell-off did not surprise us when it reversed and the markets stampeded higher into the close, erasing almost all of the previous two day’s losses.

Admittedly, momentum rallies always have a bad ending, but that does not mean we should ignore their profit potential as they continue to rise.

For the SPY, the widely traded ETF that follows the S&P 500 Index, the 50% retracement for the entire bear market decline is only 2.5% higher, at $112.31.

For the SPX, the 50% retracement for the entire bear market decline is only 2.4% higher, at 1119.31.

There are many technicians calling for a reversal and correction at that 50% level. That could certainly be the case but until such a reversal actually occurs, the trend remains up.

If we do move lower, initial strong support should be found around SPX 848 which is the 50-day moving average for this big cap index (for the SPY the 50-day moving is at about $85.00).

The http://www.fibtimer.com ETF Strategy has a position in the S&P 500 SPYDRs.

[Go to http://www.financialwire.net/?s=frank+kollar to see more commentaries by Frank Kollar.]

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