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Monday, January 13, 2014

Daily update 1/13

About face.  That was not exactly what I thought would happen today when the market closed on Friday.  Here is the daily SPX chart.

This was a key reversal day somewhat similar to 11/7.  There was no follow through that time.  Will that be the case again?  I don't think so.  Now with taper a reality and a new tax year I suspect there will be some more widespread profit taking this time.  In Daily update 1/9 I wrote:

"However, since the beginning of Nov. the 130 and 195 minute charts are different.  There are quite a few big red volume bars in both charts.  Even after the last FED meeting and break out to new highs there were still big red bars.  Both of these charts look a bit like distribution to me.  At the very least they are not wildly bullish at the moment."

Today was clearly a distribution day.  In that same update I wrote:

"This morning we gapped up and over resistance and above the neck line of an inverse head and shoulders pattern that had developed over several days.  That should have been a bullish development, but only the sellers showed up to the party.  Remember back in Nov. when the market was struggling with 1808.  I said that the intraday action looked like it was a lack of desire to push price more then selling resistance.  This pattern looks more like selling resistance to me.  The difference matters if resistance is not overcome and sellers swamp the dip buyers.  We did not have that problem to worry about late last year.  If the market turns down here it could result in a bigger pullback then we have been seeing over the last few months."

Today the sellers swamped the dip buyers.  SPX tried for several days to clear 1838 and failed.  Even the old gap up and over resistance trick failed twice.  I think it is probable we will see more downside.  First things first though SPX closed below the 18 SMA, but needs to close below today's low to confirm the break.  That would also confirm the reversal day.

The bears fired a shot today.  How will the bulls respond?  A bounce tomorrow morning would not be surprising given the move down today.  It will be important to get back above the 18 SMA to get back in bull mode. Option expiration week has a strong upside bias statistically.  However, when it is down it can be down big.  Something to keep in mind if we keep going down this week.  Prior support levels are 1808, possible round number 1800 and the major level of 1775. We obviously have 1838 above as resistance.  There may some at 1830 now, but I can't be sure of that.  Despite how bullish the market has been for the last two years things may have changed.  Given the action since this year started the bulls need to prove themselves.  SPX has not traded positive on the year yet.


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