2000: An S&P500 Odyssey

Today the S&P500 rejected the psychological and technical level of 2000 and closed the day just north of 1997.5

My resistance/support and pivot levels for the S&P as an added bonus

A few days ago, I talked about the fact that the markets were largely betting on a rejection of the 2000 level, which this week's price action seems to be thus far confirming.

Traders took the opportunity this week to use the 2000+ level in the S&P500 to take profits. The most notable was yesterday's false break-out in which the S&P briefly rallied to a morning high of 2009, which was later rejected on high sell volume. Today saw similar price action in which the 2011 level was used to take profits.

The largest US company by market capitalization (i.e. $AAPL) saw very heavy profit taking this week:

A quick look at price action on the 3rd of September shows nearly 15 million shares dumped (i.e. market order) to lock in profits. This isn't ma' and pa' in Topeka, Kansas unloading 15 million shares of Apple in one day. A wild guess would say that Goldman Sachs in Manhattan, for example, would be a more likely culprit.

Back to the S&P500. Spreads in option sales for $SPY showed some slightly bullish sentiment for tomorrow, but markets appear to be more bearish for the end of this week:

A look at the risk skew for $SPY reveals something interesting:

Traders are betting on one of two things for tomorrow: The S&P500 will see a rally, breaking the 2000 support and possibly finishing up to the 2002-2004 technical levels. Other traders are betting on a sell-off up to the point of first technical resistance, which I would estimate around 1994 and another down around 1987.

However, the story for next two weeks seem to be almost entirely downside price action in the S&P (the orange curve).

Weigh the possibility of both things happening tomorrow. Sellers will use a potential morning rally near and above the 2000 level to provide liquidity, and later will use mid-day dip buyers to provide further liquidity to lock in profits.

Be aware that many bulls got trapped this week at the 2004-2011 levels in the S&P, and a capitulation by tomorrows expiry may add to further downside activity in the index.

Heavy selling in high-risk sectors this week may indicate an upcoming period of consolidation. In addition to tech stocks, biotechnology saw heavy profit taking today:

Please remember that stocks and ETFs don't go straight up or straight down, but today and yesterday showed strong signals of an upcoming consolidation period for the near 100-point, two week rally in the S&P.

The $VIX increased a quarter-point today and has been indicative of increased risk-hedging by traders and fund managers this week:

Red: IV30    Blue: HV30   White: HV10

Good luck tomorrow.