SPX stuck its head above the downtrend channel today. The 100 SMA is also in this area. Everything I read seems to indicate the market is going to keep flying up from here. What is this chart telling us? Here is what I know. At the lows the price penetrated the lower channel line, but ended up reversing. Price has now penetrated the upper channel line. Is that an equal and opposite reaction? Will price be able to hold above that trend line? The market is now in a very short term overbought condition in a down trend. Check out the breadth chart.
The McClellan oscillator is above the green line so it is in an overbought position. The 10 MA breadth chart had a positive crossover today. That means it has completely worked off its oversold condition, but is still in a fragile state. At this point it is pretty easy to cross back negative again. Lets zoom in to the 130 minute SPY chart.
I have circled two areas on this chart that may provide resistance in this area. The volume pattern does not show any serious accumulation on this move. Big red volume bars are still dominant. Spy is well above its 18 SMA on this time frame making it very extended. Just looking at this chart since the election I see a high volume fast move down followed by a low volume fast move up. Of those two moves which do you think has more conviction?
Let me see if I can summarize what I see. We have a market in a very short term overbought and in an area of possible resistance within the context of a daily down trending channel. There also seems to be way too many bulls coming out of the woodwork. Apparently the market can only go up into year end. This combination generally ends up being a much better short setup then a long one. If we have a gap up on Monday I will be looking to establish some short positions. I believe there will be some profit talking from this bounce into the strength. I don't believe it is technically possible to declare a significant low is in. Anybody that says that is hoping. The technical evidence is not there. This rally has not been tested in the least. Until we get a down day and see where/if the bulls show up again nobody can proclaim a bottom is in. Any analyst that does that on a regular basis will be proven wrong a lot, LOL. I am pretty sure down days have not been eliminated so I suspect we will see one next week. I want to see a higher low somewhere before claiming an important low is in. All I see is panic low volume buying so far. That usually does not end well. One bullish scenario would be a pullback that is slow enough to keep price on the upper side of the upper channel trend line. That kind of move down can last quite a while and go down a pretty good ways and still be very bullish. Bears want to see price get back below that upper channel trend line. Should that happen we could easily do a full retest of last week's low. If the market does not gap up on Monday I will be watching the SPY hourly 18 SMA for a short entry.
Bob
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