I mentioned Friday I thought it would take some really good news to break out and move higher. Today the bulls tried to break the market out without the really good news. The end result was a failed break out. That is not much of a surprise. Just look how far price is above the 18 SMA. You have to be pretty brave to buy a breakout of two month resistance when price is stretched that far in the short term. If we had some really positive news it might have made a difference. Without that people just were not willing to do it. Lets take a look at the SPY 60 minute chart.
There was a burst of buying this morning that drove SPX to a new high. That caused some short covering and sucked in some new long break out players. After that initial buying dried up mid day the market started drifting lower in the afternoon. The sell off gained some momentum going into the close. SPY is still above the 18 SMA, but that is not a very pretty price pattern for bulls.
SPX getting to a new high fulfills the objective set when the VIX got rejected at its 200 week SMA. I was not real sure it would get there, but it did. Now we have a down Jan. barometer and a failed break out to new highs. We also have the Dow and the transports lagging SPX and are still significantly below their highs. If this market heads down now I think it could turn with a vengeance.
The last four bars already looked like a top forming on SPX. Today only made it look even more like a top. I think tomorrow is decision day. If the bulls do not get SPX to close above 1850 (preferably more cushion then that) I think we will head down.
Bob
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