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Wednesday, February 5, 2014

Daily update 2/5

That is more like it.  Last night I said I would like to see a retest of the low to flush out remaining sellers.  This morning the futures got 1 tick below Monday's low before the bulls started buying.  That is very aggressive and says people were just sitting there and waiting for that retest.  This is a much better response to my over sold buy signal.  Lets contrast that with the attempted low back in Jan.  I got the first buy signal on 1/27.  The market tested that low two days later, but the futures went 3 points lower before bouncing.  The market tested that low two days later and the futures went 3 points below the prior low again before bouncing.  I don't know if there is more testing to come, but I believe the bulls will put up a much harder fight this time.  Here is the daily SPX chart.

Even though SPX was down slightly today it still closed above the Nov. low.  Everybody that bought from Nov.-Jan. have a vested interest in holding this market up.  I believe they will defend this low much more vigorously then they did in Jan.  Lets zoom in to the SPY 60 minute chart.

SPY ended the day above the 18 SMA.  The first bar this morning had the biggest volume of this entire decline.  Monday looked like a volume climax low on the daily chart.  This looks like it might be a volume climax low on the 60 minute chart.  This chart is in position to turn up.  Will the bulls show up and make it so?

The stage is set to make a low.  In the absence of bad news tomorrow I believe we will rally.  Above yesterday's high I would expect a significant short squeeze rally.   I have gotten two over sold buy signals without the market alleviating the over sold condition in between.  That is a very rare occurrence.  This usually means there are a lot of short term traders short this market.  If it gets going on the upside there should be a lot of fuel as they run for cover.  Don't be the last short out the door if that happens.  If the bulls fail here we will have a mini crash.  I seriously doubt we stop at the 200 SMA.


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