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Thursday, December 13, 2012

Daily update 12/13

The market followed through on the downside from yesterday's gravestone doji at the confluence of resistance.  Yesterday was significant in that price made more then a 20 day high before reversing.  There is some significance of 20 day highs and lows.  There was a rather famous trading system invented many years ago around them.  This became known as the turtles system.  You can read more about it here if you are not familiar.  Turtles  At some point somebody noticed that break outs to new 20 day highs or lows have a significant failure rate and often lead to sizable moves in the opposite direction.  This became known as the turtle soup +1 setup. You can read more about that here: Turtle soup +1.  This could be a significant high we just made.  Here is the SPX daily chart.

SPX closed about four points above its downward sloping 50 SMA.  Downward sloping MAs do not provide as much support as upward sloping ones..  Will this just be a retest of that MA, or will it go back down through it?  Volume declined from the last two days.  Lets zoom in to the 60 minute SPY chart.

SPY ended the day right around its 50 SMA.  There was a big spurt of volume late in the day when they announced that the president was meeting with Boehner.  I don't if know that is meaningful or not.  Lets take another peak at the breadth chart.

Both breadth indicators had negative crossovers today.  One day off a more then 20 day high is pretty rare.  This adds to the odds this is a significant reversal.  The market went down for eight weeks into the Nov. low.  A decline that long needs to see some significant strength in breadth.  We didn't have a bottom that looked like selling was exhausted and we don't have a rally that looks like the beginning of a new leg up.  This might be nothing but a bear market rally.  If there is follow through on the downside in the next couple of days we could be starting a retest of the Nov. low.

It looks to me like the key support for SPX is around 1400.  There was a high volume upside revesal bar on
12/5 with a low of 1398.  A break of that low makes the retest of the Nov. low pretty likely.  I don't believe the 200 SMA will catch the market from this setup.  Until that is broken the bulls can always show up again so bears must be vigilant here.


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