Chop Chop Chop

The word “chop” has its roots in the word “chap” as in rough skin. The dictionary defines it as marked by abrupt transitions, rough with small waves, and interrupted by ups and downs. Well that last phrase certainly characterizes the current market conditions with an emphasis on the downs. When we break support levels we go to new lows and a trend is defined as a series of highs and lows. If the series of highs are lower highs and the lows are lower lows the trend is down. If the series of highs are higher highs and the lows are higher lows the trend is up.

On the chart below can be seen a low at the 86 area on the SPY (equivalent to the 860 area on the S&P 500) which acted as support during the last week of December 2008. The new year began with a rally to the upside. However, that support line was broken with a gap to the downside and that is a bad sign. This chart is 20 trading days or approximately one calendar month. We have to get above the 94 area to negate the effects of this recent swing low to continue a trend to the upside. Otherwise, we are beginning a trend downward and that would be a 5th wave down. We will just have to wait and see. Also note that today is options expiration day which increases volatility in the markets. Click on chart to enlarge.