SHORT TERM TECHNICALS

There is an excellent article on realmoney.com by Harry Schiller that describes the gaps, traps, trends and everything else possible on the SPX and NDX charts over the last few weeks.

Bottom line from Harry is that he thinks the NDX is leading the SPX around by the nose and he expects the recent gaps from August 15 to fill. Here is some of his commentary on what he expects:

"On the NDX's downside remains the Aug. 16 gap from 1539.59 down to 1534.43 (QQQQ 37.75) . This gap will get filled, and if I were a gambling man (which of course I am not), I'd have to bet it will get filled next week. Watch Thursday's low of 1542.47; a break of that level should signify that the NDX is headed for that gap."

"On the upside, if the S&P futures can get above the recent high of 1307.50 -- especially on a closing basis -- in the process filling the gap at 1307.10, then it's got a shot at getting back to the other remaining overhead gap from May 12 at 1311.70. That's probably the best-case scenario in this time frame."

As I have mentioned before, I expect the gaps from August 15 to fill and at that point I would look to cover shorts. I also expect the upside to be tested and that should be a point to sell some longs into the the 130.5/131.5 on the SPY.

The SPY chart is showing us a bearish divergence on the MACD Histogram as the SPY has moved higher but the MACD continues to make lower highs. Stochastics also pointing to lower prices in the short term. The gap fill on the SPY would be the 128.8 area or about one dollar lower than Friday's close.