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Thursday, February 20, 2014

Daily update 2/20

We got the bounce as expected.  What now?  Here is the daily SPX chart.

SPX made back most of the loss from yesterday, but not all.  Until we close outside yesterday's range I don't think we will know much.  Lets zoom in to the SPY 60 minute chart.

Dip buyers rushed in to buy the much worse then expected Philly FED data.  I guess the old theory that bad economic data is good for QE still exists in some people's minds.  Once price reached the prior resistance level the market just sat around.  This area has been resistance all year.  It is not clear to me that all of a sudden we are now ready to break out above it.  The bulls need to show us they are willing to push price higher.  We ended the day above the 18 SMA, but we spent several hours above it in the afternoon and could not move higher.  Falling back below it is likely to bring on some fresh selling pressure.

The Dow climbed back above its 50 DMA today, but the transports did not.  No clear picture there yet.  The dip buyers showed up today, but what has been missing all year is rally chasers above 1840. Will they show up now or not?  My guess is not.  I think if we start down again tomorrow it is likely to keep going.  However, SPX must close below yesterday's low to confirm that downside reversal.  I want to see a true thrust up and over resistance to get any confidence we are going higher.

Check out this chart of the Nova/Ursa ratio.

I have been watching this chart for nearly two years now and I have never seen anything like this.  The normal range is +-25-30 on extremes.  We just had a swing of -50 to +50.  Are people's emotions running higher or what.  We went from extreme fear to extreme greed in a very short time.  This may be nothing, but it could also be a sign of instability amongst investors.  Are they feeling some uncertainty now that QE is being tapered?


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