The light blue horizontal lines mark the .618 to .786 retrace zone. This is the most common area to make a lower high. Closing above the upper line should target a full retest of the all time high. The actual intraday range was very narrow. Here is a look at the SPY 60 minute chart.
SPY traded sideways all day after the open. Every little dip was bought. The over head resistance from the 8/15 gap down held the bulls in check all day though. There were 205 new highs today. That was the most since 8/1. This is a high risk area to get long. People were doing it today, but will they continue over the next few days? I think this gap is likely to get filled in the near future. In May and in July the market got over bought like this and just kept right on going up to new all time highs. Are we on the way to doing that for a third time? That seems too easy to me, but I guess anything can happen. Lets take a look at the put/call ratio chart.
I circled the last two peaks in the 10 DMA of the put/call ratio. As you can see the recent peak was not even close to those. In fact it is already down to levels where it has been bottoming all year. This was a very low fear level with SPX trading all the way down to the 100 MA. That means we probably do not have the same upside fuel available that we had in the May and July rallies. It is possible the market makes a lower high around here and turns back down.
I suspect the market priced in over the last two days no taper at the Sept. FED meeting and no military action in Syria. I have no idea whether those are good assumptions or not. What happens here depends on what the bulls that bought in late July and early Aug. before the big gap down do. Will they hang on or bail? Only time will tell.
Bob
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