Volume increased slightly today so technically it was a distribution day. There were 103 new highs and 78 new lows. I wrote this 10/4/2007 "With the Dow in new high ground and SPX just a few points away, we only had 76 new highs today. There were 64 new lows today." As the market was making the final highs in Oct. of 2007 the new lows were elevated just like today. So the market is at the highs, the trend is up, but the internals are really weak. Big down moves have happened from these conditions. Will it happen this time? Nobody knows for sure, but I think it is important to be aware of the risk. Lets look at the SPY 60 minute chart.
There were a couple of big red volume bars so there was a bit of distribution evident today. It closed below the 18 SMA, but there is no confirmation of the break. The fact that it closed several bars under the 18 and did not break down indicates there was dip buying support. This is nothing new though. For the last several weeks we have seen plenty of dip buyers. What has been missing is rally chasers. SPX closed at 1798 on 11/15. Here we are three weeks later at 1802. At some point the market must move higher or the dip buyers will dry up. The pattern on this chart is still within the possibility of a bullish cup and handle. If we get a confirmed break of the 18 SMA (hourly close below this afternoons low) then I think the odds shift to this being a double top instead.
The market becomes very lethargic when SPX gets above 1800. Price just meanders at the highs until if eventually pulls back some. Then the dip buyers rush in again. The price action looks like a lack of buying interest more then selling resistance. If there is strong selling resistance price usually gets rebuffed pretty sharply and fairly quickly. That isn't happening. The key levels are 1800-1813. We have to break out of that range to determine the next directional move.
Bob
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