From June 4th through last Monday the S&P 500 rallied over 11%. The move was like floating down a lazy river; slow, steady, and just a little bit boring. Dropping from an intraday high of 1,426 to 1,400.5 was less than a 2% loss, but it was enough to remind traders that even mild rivers have their waterfalls and rapids that demand respect, if not fear.
Eric Wilkinson, co-founder of Blue Group Trading says that for bulls to keep the upper hand they need to hold the line at 1,400. "That's where the most amount of trading has happened over the course of the most amount of time," he says.
It's the size of the trades being put on near 1,400 that makes it matter. "People are really comfortable there; they're not afraid to put on positions at these levels," says Wilkinson.
Either the bulls or the bears are going to get start getting very uncomfortable depending on the next 1%. Of such discomfort are sharp and expended moves born.
Wilkinson thinks the breaking point for bulls is about 1,375 on the S&P. That's where bulls will start conceding defeat and dumping stocks. Failure there and "a real push" down to 1,350 will happen in an hurry. For the bears, the Blue Group kingpin says closing above the old highs at 1,422 will be critical. No one anywhere wants to be short on a breakout higher at this point in the year. [See: Apple Reversal Signals Market Mood Change Underway]
Stocks are right near 1,400, right now on Friday morning. Ignore the level if you like, but be aware that billions of dollars is being wagered on which way the tape is going to move next. Short or long, it's game on. Ladies and gentlemen, place your bets.