It should not be a surprise to any readers of this blog that the indexes are pulling back after meeting resistance at the 200 day moving average.
Both the [[SPY]] and the Dow Jones find themselves in precarious positions. They must defend the levels just below Wednesday’s close, or they will find themselves trading back within the Jan-April range. Both indexes closed just above the support provided by the double-bottom breakout. Should this support not hold, we will watch the uptrend line to guage strength.
Like the SPY, the Dow Jones is in danger of sinking back below its double bottom breakout pivot. Should this pivot not hold, the indexes may find themselves in Failed Breakout mode.
The Qs, however, are still very strong, and are trading above the 200 day average. Will it hold on this pullback?
Bottom line, this pullback was to be expected, as is a test of the uptrend line. Pay close attention to how the market is reacting to negative news. Should negative news continue to be discounted, I expect this pullback to be of the buy-the-dip variety. But when in doubt, keep your eyes peeled on the uptrend line and the pivots established at the top of the 3 month trading range. Should all those break, the indexes are back to being rangebound.
From EW Lives On:
“It wouldn’t be surprising if SPX 1423 was the top of the uptrend. Certainly it’s too early to tell, this uptrend has had a tendency to be quite volatile at times. Nevertheless, if the current decline of 32 SPX points, turns into 80 points in the short term. We can then expect a rally back to the breakdown point, before the serious part of the downtrend begins.”
Support at 1383 then 1364 then 1344 and a retest back to that 1405-1410 breakdown point before the downtrend resumes.