Daily update 1/6

Down a little more.  Here is the SPX daily chart.

SPX closed at a new low for 2014.  Volume picked up a bit today.  People did not waste any time this morning selling into the gap up in the futures.  After a mid day bounce there was a little more selling into the close.  So far in 2014 the profit taking crowd has been bigger then the dip buying crowd.  Lets zoom in to the 60 minute SPY chart.

SPY gapped up to the upper trend line and sold off to break the lower trend line.  The afternoon bounce tested the trend line from underneath then rolled over going into the close.  That could indicate there is more down side to come.  The selling is clearly not panicky.  People are looking for strength to take some profits on.  The question is how long is that going to last and how big of a hammer do the sellers have.   There is also the question of TLT.  Check out the daily chart.

I mentioned a few times that TLT should be setting up for a big move.  The odds should favor a downside resolution because of the trend, but TLT refuses to break down.  It is  now trying to peak its head above the upper trend line again.  I think there are a lot of bond shorts.  It sure seems like many people are bond bears for 2014.  If TLT gets going up there could be a significant short squeeze.  The obvious question would be why would rates fall.  My guess would be taper.  Maybe some people are worried it will affect the economy negatively.  I am sure a lot of people think stock prices are only as high as they are because of QE.  It stands to reason that some people may rotate from stocks into bonds with QE being cut back.  The market is not going to wait until it ends completely.  Once the FED starts on a policy move has it ever reversed it suddenly?  Not that I am aware of.  It would likely take some very special circumstances to up QE again.  That could mean that stocks were already down significantly.

We are still below the SPY hourly 50 SMA and above the SPX 18 DMA.  That is the slop zone where price can be pretty choppy.  We have support for SPX around 1808.  The last two days show resistance in the 1838 area.  

Bob