(Click on the chart, then click on the zoom magnifer labeled All Sizes above the chart.) IMPORTANT LEVELS: 943.85 1/6 High 936 PNF MAJOR daily potential support/resistance (plus or minus .005%) 934.70 1/7 Gap 898 PNF MAJOR daily potential support/resistance (plus or minus .005%) 879.52 Gap from 5/4 877 PNF hourly potential support/resistance (plus or minus .0015%) 855.16 Gap from 4/29 850 PNF hourly potential support/resistance (plus or minus .0015%) 844 PNF hourly potential support/resistance (plus or minus .0015%) 837 PNF hourly potential support/resistance (plus or minus .0015%) 825.16 Gap from 4/09 821 PNF hourly potential support/resistance (plus or minus .0015%) 811.08 Gap from 4/1 805 PNF MAJOR daily potential support/resistance (plus or minus .005%) 778 PNF hourly potential support/resistance (plus or minus .0015%) 772.54 Gap from 3/23 679.28 Gap from 3/10 959.90 200 SMA 803.65 50 SMA 858.82 20 SMA 870.94 10 SMA 887.00 5 SMA SPY HOURLY VWAP = 90.31 $Bullish Percent is ascending at 71.40. Often $Bullish Percent above 70 is an area where issues and indexes become quite vulnerable to pullback. In the last 9 weeks the $BP has moved from 12.80 to 71.40. The $BP prior up move took it from 8.60 on 12/23 to 72 on 1/6. The $BP is at levels that turned the market back in early January and in June of 2007. We have seen demand in command for 9 weeks. The weekly price/volume picture of SPY shows last week’s volume of 1.38B testing the benchmark week of 1/12 which had 2B volume. Then on Monday we popped above the price level of the week of 1/12 on very light volume. This could have short-term negative implications but two days don’t make a week. A failure to hold the Monday’s gap up would also have short-term negative implications and may portend the pullback so many have been forecasting for almost a month. The McO is once again bloated and at fully overbought extremes. On the sentiment front, once again, there is evidence of bullishness and complacency on the rise. Put call ratios remain low and they dipped further on Tuesday. And there is nothing bullish about the $VIX as it approaches recent lows: it has once again closed within striking distance of recent multi-month lows. A break to new lows in the $VIX, below the April 17 intraday low of 33.68 or even a close below the closing low of 33.94, will be an indication that another top is forming. Beginning of the month seasonality ends tomorrow and bigger picture weak seasonality May through October begins. There is currently a lot of poking fun the “sell in May” concept, but the numbers don’t lie. According to Yale Hirsch’s Stock Trader’s Almanac, since 1950 the Dow has gained 10,407 points during the strong 6 months from November through April. But during the weak 6 months of the year from May through October, the Dow has lost 2453 points since 1950. By the end of the week strong seasonal influences will no longer be supportive of higher prices. Longer term picture of the $SPX is bullish. The .618 retracement of the 1982 low to October 2007 all time highs advance is 665.23. Close enough in March. There is another important .618 retracement level of the decline from the Election Day high to the March lows is 877.35. That level gave the market trouble for weeks and now is potential support. On April 17 we nearly got to that level and the pull back 49 points to 827 into the April 21 low. Another pop back up to the highs followed and though the level was exceeded on an intraday basis, the $SPX was unable to close above this level until last Friday (by a few cents), From there, the $SPX gapped up off this level to explode to the upside. So for now the .618 level at 877 has transformed to support. The gap on Monday virtually assures that we haven’t seen the last of that level and if it holds an expected pullback to this area it may continue to provide support to a further advance. But a break below this level will convert it into resistance again. Short term there is a bullish case for a further rally or at a minimum some sideways action prior to a resumption of the uptrend. The media is pounding the bull market drums with the $SPX back in positive territory for the year and the resumption of a big bull market. Of course, that kind of media often kills a rally and marks a ST top. Currently, I am short the $SPX 100% at 898 via SDS in my retirement account and 50% at 880 in my regular account. I have been wrong on my last 2 trades (still in one) based on the hourly PNF potential support and resistance levels. I, for one, am not buying Monday’s breakout ST, although its certainly possible to fill the gap and reach the PNF level above at 936. The market is going to do what it is going to do. Good luck. CH

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