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Tuesday, February 11, 2014

Daily update 2/11

That was interesting.  Here is the daily SPX chart.

That was one sharp rally.  The new red line is the .786 retrace level.  Above that line and SPX should test the all time high.  It almost touched it today before pulling back a bit into the close.  That line happens to fall at the bottom of most of the trading activity in early Jan.  That should be pretty strong resistance.  Lets zoom in to the SPY 60 minute chart.

That is an equal and opposite reaction if you look at price and the 50 SMA.  We went from very over sold to very over bought on this time frame.  I would say the odds are pretty high it goes sideways to down from here for a bit.

There were only 92 new highs today.  For a big move this close to the highs that is pretty pitiful.  The lack of new highs combined with some important indexes lagging suggests this is just a retest rally destined to fail.  SPX has made it up to the .786 retrace line which is a very common place to form a lower high.  This rally is completely untested as there was no serious selling pressure at any time during market hours.  We will have to see what happens when true selling pressure shows up.

This is not a very convenient price pattern to say exactly what means the bears are back in control.  The short term price is very extended into resistance which means a pullback is likely.  However, the bulls could rush in to buy a dip.  On the flip side price could really collapse.  We had two 90 percent down days which suggests a deep correction or bear market has started.  The Jan. barometer was down and well publicized.  It is possible that as soon as the market starts down on profit taking that some serious selling pressure comes in.  My best guess at the moment is that a close back below 1800 would be a sign the bears are in control.

I think this bounce is the last opportunity to take defensive portfolio actions.  Tthe risk of some serious down side looks high to me.  Very fast moves like this rally are most often counter trend moves.  They get people all excited only to be completely retraced.  We will see what happens this time.


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