How S&P Responds to 1275 Is Huge Market 'Tell'

The Dow [.DJIA 12066.80 8.78 (+0.07%) ]

suffered a triple digit sell off Tuesday and the S&P [.SPX 1308.44 2.11 (+0.16%) ]

closed sharply lower with investors running for the exits after crude hit $100 and comments from Ben Bernanke sparked inflation concerns.

Demonstrations overseas sent oil prices [CLCV1 102.45 0.22 (+0.22%) ]

surging with varying degrees of violence reported in Libya, Yemen, Bahrain, Oman, Iran and Iraq. Investors now worry that oil workers in some of these nations may strike.

Meanwhile, in testimony before Congress, Ben Bernanke showed little concern about the move in oil, and again called the risk of inflation ‘modest.'

The Street largely took his comments to mean the recent spike in oil and other commodities will not lead to a broad policy response from the Fed, at least for now. In other words the Fed had no plans to aggressively fight inflation by raising rates.

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Considering these developments, Guy Adami is concerned that a sell-off may be brewing. “I’m not sure 1300 holds,” he says. And if the S&P tests 1275 it could be a huge market tell. “1275 was resistance on the way up late last year and support on the way down earlier this year. If we test that level, what happens will be telling.”

Mary Ann Bartels, Bank of America Merrill Lynch head of U.S. Technical Analysis largely agrees. She tells us 1270 is her key level on the S&P. And if we breech 1270 then we’re looking at 1220 to 1170, she counsels. "We'll be in for a deeper correction," she says.





Pete Najarian is also growing skeptical of the rally. He points to the Vix [VIX 20.70 -0.31 (-1.48%) ] which closed above 21. “That’s a huge concern,” he says "And when oil ticks above $99 people start to panic," he adds. “Oil can flicker above $100 and we can handle it,” he says, but Najarian needs to see oil really pullback before he can feel bullish.

Joe Terranova thinks the next big move has everything to do with oil. “The market is extremely sensitive to it right now,” he says. In other words, he expects an almost inverse correlation between the price action in crude and that of the S&P. As one goes higher the other likely goes lower.

Tim Seymour is focused on the negative action in energy stocks [XLE 77.51 0.44 (+0.57%) ] despite the stead climb in WTI. He finds the divergence notable.