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Friday, October 26, 2012

Daily update 10/26

I have been talking about a possible bounce for a couple of days now.  I think it will happen on Monday.  Lets start with the SPX daily chart.

SPX made a slight new low today, but failed to go cascading down yet again.  This is now four days in a row.  Clearly the bulls are supporting this market here.  First rule of shorting, when the market stops going down get out.  Do not wait until everybody else starts getting out first.  I think a big short squeeze is coming next week.  Lets zoom in to the 130 minute SPY chart.

I am switching back to SPY now since it should be long enough since the dividend gap.  Those green support lines I put on a long time ago.  So far we have held above even the top one.  Notice the bars at the end of the day.  There was a bullish hammer candle and and an inverted hammer.  After a down trend both candles are bullish.  The last bar was also green.  Lets zoom in to the 60 minute chart.

SPY closed above its 18 SMA after several days below it.  The pullback at the end of the day closed just above it.  This chart is ready to go on the upside.  This is a short squeeze waiting to happen.  The chart has turned up with green bars, but did not go far enough to scare out the shorts.  Usually they gap it up the next day and cause the shorts to cover like mad.  I have been on the wrong end of this setup way too many times.  The red line is at the SPY high since the big gap down.  Above that line and the short squeeze will be on.  They might gap it up over that line to start with, but it is a pretty good ways above so it is hard to say.  I think they will get it above that line on Monday.  One more chart to look at.

Here is the current breadth chart.

The 10 DMA breadth chart has a slight positive cross tonight.  The McClellan oscillator is above the -100 level.  This is a setup for a sizable bounce.  My best guess is that we go up and kiss the underside of the lower channel trend line shown on the SPX chart up above.  It could easily fall short of that though.  We will have to just keep an eye on the move and see how much strength comes in.

For Monday do not fade a gap up.  Look to be a buyer for we should get a swing up here. We crossed the hourly 18 SMA and have a bullish setup now.  If we trade down to new lows again, it will likely have a mini cascade down.  People have been buying in near the lows, but with a failed bullish setup they will probably bail.  If we gap down to new lows it would be tricky.  The bulls may or may  not come out and support it again.  That could depend on what caused the big gap down.

Chart practice has been updated with AAPL the stock for today.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.