Good day for the bulls. We gapped up so hard that we not only filled Monday’s gap (requirement #1), but we also surpassed 11/28’s high (requirement #2). This was an immediate breakout and it was sustained throughout the day and it was a “Buy”. This seems like it’s mostly due to short-covering and the GM bailout. A lot of professional money remains on the sidelines.
Therefore, the problem is the volume, again. It’s rising slightly higher on a daily basis, but I was expecting much more. This lack of price confirmation has made me cautious and signaled to cut half my long positions and get into cash. It’s only “ok” if the volume is just sustained, but that just means that there are a lack of players in the market.
Some caution — We are only a few points away from the 50-day MA, which is resistance that we last hit in September, and failed. What should you expect tomorrow? A down day is very, very possible. I will most likely sell out of all of my longs sometime tomorrow. Look for 930 SPX. If we do rally above the 50-day MA, then I’ll sell anyway to protect profits in an overbought environment. Keep in mind that the last time we did hit the 50-day MA was right before the October crash.
The 30-day MA has become support after 6 failures. If we do have a down day, I don’t expect the possible decline’s close to exceed the open-close range of yesterday’s action. For swing traders, I’m looking at a decline of no more than -1.5% on volume that does not exceed yesterday’s volume. The 20-day MA is no longer a threat.
All in all, expect a pullback at a minimum. I don’t expect a major breakdown and we may continue to flag at the handle portion of a “cup & handle” formation. We’ve exceed all major short-term resistance levels and they have now become our support. Again, I’d like to see some greater volume to confirm price action. On the 5- and 10-day charts, we see a diagonal channel. I’d like to see no breakdowns from the channel.
If you made some money, you’d be better off taking some of it off the table and waiting for a pullback for a possible re-entry. Look below and write down all the key levels for the next trading session and don’t forget them. It prevents impulse trading.
SPX 6-monthIf you enjoy the content at iBankCoin, please follow us on Twitter