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Tuesday, January 28, 2014

Daily update 1/28

Over sold bounce started?  Here is the daily SPX chart.

Breadth was a reasonably strong 72% positive.  I don't think that is strong enough to rule out this is going to be a dead cat bounce.  We will have to see what happens tomorrow.  There is still plenty of room to continue the bounce.  Lets zoom in to the 60 minute SPY chart.

SPY ended the day on the upper side of the 18 SMA.  It is not quite a confirmed break, but it was enough I decided to hold some calls over night.  The futures are up in after hours.  If they are still there in the morning the bounce is likely to continue all day.  This over sold buy signal usually means there are quite a few shorts out there.  A gap up will likely force some short covering especially early in the day. 

I think the market was churning at the highs and that SPY has been showing distribution since Nov.  That leads me to believe this will be a dead cat bounce that will roll over to new lows.  If that is the case then the 50 DMA at 1813 could be significant resistance.  With the intermediate trend down SPX must clear the 18 DMA (1828) before we can conclude the bulls are back in control.  Another indication would be breadth over 80% positive tomorrow.  A day less then 70% positive would increase the odds it is a dead cat bounce.  If SPY ends up breaking back below the hourly 18 SMA tomorrow then look out below.  I think selling will pick up considerably. 


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