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Wednesday, February 27, 2013

Daily update 2/27

Well, well, well.  It is getting interesting now.  Things are coming into focus.  Here is the daily chart of the Dow to start with.

This is the only index that closed above its prior bull market closing high today.  Despite the immense strength in the DJ-20, it did not get there.  One truism in the market is that there is strength in numbers.  The more indexes that make major mile stones together the better it is.  With the Dow hanging out there all alone it looks more like a case of last man standing.  Notice the expanding volatility pattern that has been forming.

Here is the daily SPX chart.

This chart also has an expanding volatility pattern.  Some people call it a megaphone.  It is definitely showing instability and is often a reversal pattern.  Lets zoom in to the SPY 195 minute chart.

SPY was unable to get back up into the trend channel today.  Notice the low volume on both bars today.  The bears are still ahead in the big volume bar tally.

Most indexes made their closing high on 2/19.  We had over 400 new highs that day.  Today with just the Dow making a new high close we had just 156.  Again we have very little conviction in the volume or the new highs.  Every time the Dow has closed above 14000 it has sold off the next day.  Will this time be different?  This expanded volatility pattern shakes out weak shorts and sucks in weak longs.  This is why it is such a high odds reversal pattern.

In 2007 it was the NDX 100 that was the last index standing.  I thought it was very odd at the time for that to be the last index at the highs.  That made me wonder if we were going to test that high again before the bear market really got going.  That turned out not to be the case.  I have been wondering how this would play out.  Are we making the final high?  Will we sell off and come back up for a retest with weaker internals?  With the Dow being the last man standing this may indeed be the final high.

I think this action has used up a lot of the dip buying fuel that was waiting for a pullback.  I think we will roll over again very soon and head for a test of the 200 SMA.  That is currently around 1410 on SPX.

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

The short term trend is back to neutral tonight.


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