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Wednesday, February 12, 2014

Daily update 2/12

Pause day or top?  The last time I asked that question it was a pause day.  We are in a different position this time.  Here is the SPX daily chart.


SPX poked its head above the .786 retrace line, but failed to stay there.  That left us with a doji bar indicating indecision.  Notice all that trading activity in Jan. that occurred above that line.  That is quite a bit of overhead resistance.  As extended as we were in the short term a pause here had high odds.  We will have to wait and see if it turns into a top or not.  Lets have a look at the SPY 60 minute chart.


SPY hit its high early this morning then traded sideways the rest of the day.  This is typical of price action on a topping bar.  It needs more confirmation though.  SPY is still pretty far away from the 50 SMA.  I am not too sure people will be willing to push price just yet.  The red line that marked the 1/24 big gap down held as support today.  I don't know if that was coincidence or not.  If it continues to hold that line I would think the rally would continue at some point.

If something is going to make a lower high the .786 retrace level is a common place to do it.  This is an important juncture.  A close above today's high should set SPX up for a test of the all time high.  A close below today's low may be a sign that resistance is holding and a pullback is likely.  Even though SPX closed above the 50 DMA yesterday it needs confirmation with a higher close.  It did not get that today.  If it drops back to test the 50 before getting that higher close the odds favor it will drop through.  We still have several key indexes below their 50 DMAs like the Dow, transports, and the Russell2000.  I would expect a lot of selling to be unleashed if SPX drops back below its 50.  There were 112 new highs today which is the best day yet.  However, that is a very low number this close to the highs.  The market is in a fragile position here.  The power is up for grabs.  Do the bears pounce or do the bulls keep on buying?

Bob

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