Daily update 10/10

That was some day.  I should have discussed the targets above 1670 last night, LOL.  The upper target for the bounce was the 18 DMA which we hit today.  Here is the SPX daily chart.

I added two horizontal lines to mark the standard .618 to .786 retrace zone.  If SPX continues up from here that is the next most likely place to find resistance.  A close above the upper line targets a full retest of the high.  The last two times SPX bounced off the 100 DMA it went to new all time highs.  Can it do it again?  Let me just say that I have absolutely no clue.  The celebration today seems out of proportion to what actually happened.  If I understand this correctly the politicians talked about doing something everybody knows they are going to do at some point anyway.  Here is a look at the SPY 60 minute chart.

There were plenty of big green volume bars today.  This really looks like panic buying which often is a lot of short covering.  We were over sold enough that there were probably plenty of shorts.  SPY is now very far away from the 18 SMA.  In fact it is about as far away as it gets.  This suggests sideways to down for the next day or two.  This chart is showing an explosion in volatility.  That can mean the market is becoming unstable.  We need to keep an eye out here.  More volatile days could mean serious trouble.  Lets take a peak at the breadth chart.

Both breadth indicators are still negative.  The McClellan oscillator could turn positive with another up day.  The 10 DMA lines will probably take a couple of days.  There were only 106 new highs today which is not very many considering the magnitude of the move and relative proximity to the highs.  The breadth and volume ratio was very strong though.

Where does all this leave us?  The intermediate trend indicator on SPX turned up today, but by the narrowest of fractions.  It will be easy to turn it back down if the market rolls over.  We need another up close to confirm the trend up.  SPX stopped right at the 18 DMA.  That leaves it at possible resistance after a very big move.  Will the rally chasers that have been clearly absent since the Sept. high now show up?  SPX has not been able to string two up days together in this pullback.  Some of the major financial companies have earnings tomorrow which could drive the early trade.  I think the key pivot line is SPX's 50 DMA (1678 tonight).  A close back below that could spark some selling again.  A consolidation or slight pullback that stays above that could provide a buying op.  If SPX then moves up watch that retrace zone area for resistance. 

We had extremely weak internals at the Sept. high which usually means a prolonged correction or bear market is at hand.  Now we have some unusual volatility.  That can also be a sign of a correction starting in.   In the next few days we will see whether people chase the market higher or choose to sell into the strength.

Bob