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Tuesday, June 25, 2013

Daily update 6/25

Buy signal kicking in?  Here is the daily SPX chart.

Both SPY and the futures closed above yesterday's high.  You can't see that from SPX because of the way they do the index.  The breadth was 77% positive.  People were obviously buying dips intraday all day.  That strong of a day after my extreme over sold buy signal usually means we have a bottom.  I have adjusted the horizontal red lines to the new low.  That marks the .618 and .786 retrace levels back to the May high.  It is a bit hard to say how far this rally might carry if it continues.  We have had a lot of new lows (over 500 on Monday) which is very unusual without SPX breaking its 200 SMA.  We also had a 90/90 down day.  On top of that the junk bond market tanked which has a high correlation to SPX.  These would all be signs that we could be in for a deep correction.  However, I can't say that any of those things mean we won't get back into the retrace zone or even test the May high.  Looking at the SPX daily chart there is a two step pullback into the 100 SMA.  It looks like an ordinary pullback really.  If the market continues up we may find people piling back in again.  On the flip side we have had a very big sell off in emerging markets and there is credit market problems in China.  The news flow has the potential to short circuit a rally.  I suspect SPX will at least try to fill the 6/20 gap down which could get price back to the 1628 area.  If the news flow permits we might even reach 1650.  That would form a common topping pattern of a double top slightly lower high.  Above the upper red horizontal line the odds should favor a full retest of the May high.

I have known about this over sold buy signal since 2004.  Once it kicks in there is usually a big relentless up day as shorts run for cover.  That did not happen today so it may be yet to come in the next couple of days.  As long as we don't break the hourly 18 SMA on the down side we should eventually get that big up move.


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