The recent fear and uncertainty that has been tickling the bears and testing the bulls is healthy and a necessary component in the market right now. For three months the market’s advance went virtually unchecked. Even the bulls were openly admitting a pullback was necessary after such a move. The bears had over a month to lick their wounds and leg into new short positions. A pullback here will allow the bears to cover some shorts while the longs reload. Hopefully, this restores some balance, and with that balance I hope we will see some increased volatility.
The move above the 200 day moving average was a major technical event, and major technical events are usually tested. The SPX tested the average today when it traded 3 points beneath it and then reversed to close above it. Should the SPX continue to close above the 200 day moving average after testing it, the major technical event will carry increased significance.
There is certainly the chance that neither the 200 day nor the 50 day average will hold. If this occurs, 875 is the line in the sand. Beneath 875, the darkened abyss awaits. If you look hard, you will see 666 written at the bottom.
An upper support/resistance line could be drawn at 925. Had I drawn this line, it would show a failed breakout as the SPX has returned to the range it traded in throughout May. Instead, I like the descending triangle because I believe traders were using that line when it was broken to the upside on the last day of May. This triangle may add support in the 900 area. It also splits the 875-925 range down the middle.
RSI2 is at a level that is normally associated with a bounce, while the Chaikin Money Flow has been waning but has yet to go negative.
Volume increased today to the highest level since the first day of the month. I would like to think it was due to accumulation around 900 and the 200 day moving average, but it could be distribution.
In general, there has been very little technical damage done during this pullback. That could change very quickly.
Bottom Line: The bulls must come out in force and defend 900. The market has closed lower three days in a row (read a study about any edge associated with x closes in a row), there is round number support and technical significance associated with 900. Neither the bulls nor bears now have an excuse for inaction. The bears can’t say they are waiting for the market to crack, and the bulls have gotten an opportunity to buy in lower. One or the other must take control.
There is an edge with this setup. My calculations show a 74% chance the SPY closes at least 2 points higher than this evening’s close, on average within the next three days.
This pales in comparison to my work.
The above post is why I visit, refer dear friends, and buy everything your advertisers sell.
wood,
how are the dip buying candidates doing. I wonder if you keep getting stoped out is there a way to defend this. What i mean is if it turns out to be a bear and downturn starts where you stop trading your system.
TIA
bill
i just checked and most of the signals are doing OK, how is your big bamboo system doing
Moonshine, Thanks!
Bill, some of the dips are taking it on the chin. AEO stopped out today.
Gotta…get..some….sleep.
Will update tomorrow morning.
Wood,
That’s close to how I see it too. First support 899 and second support 874. One of my trend following indicators is close to a sell signal, although it has come close before and the markets turned around. I’m in cash now. After a 1% plus loss, I’m waiting for a little more market direction here.
P.S.
Thanks for Asian market U.S. correlation web article.
Wood,
Thanks for web article on Asian U.S. correlations
Written very well, concise, and makes sense. With your writing style and analysis skills a post like this should be routine with you because your good at it. You would have traders ‘running’ to your site to read the latest post. Thanks for all your work.
Thanks Nergo. I used to write in this style and format a lot more often. I will see if I can’t resume doing it again more regularly.