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Monday, January 27, 2014

Daily update 1/27

Downside follow through.  Here is the daily SPX chart.

SPX bounced off 1775 support line after a brief penetration this morning.  At that point price was stretched in the very short term.  After a mid day bounce that got SPX back into positive territory the sellers returned going into the close.  I got an oversold buy signal today (green arrow).  That is the first one since last Aug.  You can see that green arrow on the chart.  Notice that price did not bounce right away.  After it finally bounced SPX went on to new lows.  The last three signals before that marked the day of the closing low before multi week bounces.  What will it be this time a dead cat bounce or a lasting low?   Since the 2009 low every buy signal that was followed by a strong up day the next day was a multi week low.  That was not the case earlier in the decade.  Lets have a look at the 60 minute SPY chart.

That is some straight down move the last two days.  There is plenty of room for a bounce, but there is no law that says the bounce must start right away.   Every once in a while the market will continue down significantly after one of these over sold buy signals before any bounce.  One way to play them is to wait for a break of the hourly 18 SMA before holding long overnight. 

After the close AAPL was down significantly on earnings.  Once upon a time that would likely cause a gap down in tech stocks and possibly the entire market the next day.  However, AAPL is not as important a leader as it once was so that may not be the case this time.  It is enough of a wild card to make it hard to predict what happens tomorrow though.  I will be watching for a break of the SPY hourly 18 SMA for a sign the buy signal is kicking in.


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