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Monday, March 17, 2014

Daily update 3/17

I guess the over sold buy signal from Friday caused a bounce right away this time.  Unfortunately the gap up was pretty big.   IWM was a notable laggard today for some reason.  Here is the daily SPX chart.

SPX closed slightly above the 18 SMA.  However, there was a big drop in volume today.  Not much conviction evident there.  There were only 113 new highs today which is another sign of a lack of conviction.  Lets have a look at the SPY 60 minute chart.

The first hour started with a big gap up and ran up a bit after the open on big volume.  Given the over sold condition we had on Friday, that was mostly short covering.  SPY spent the rest of the day within the price range of the first hour.  Price also oscillated up and down with every bar in a different direction until the last two.  Volume during the middle of the day was extremely light.  SPY struggled with the 100 SMA all day.  There is still some room up to the 50 SMA so we could bounce a bit more tomorrow.

The low volume, the relative weakness of IWM and the low number of new highs would seem to suggest this is just a dead cat bounce.  I think we need to see a confirmed break of the SPY hourly 50 SMA on the upside to get comfortable the rally is resuming.  There is a two day FED meeting this week starting tomorrow.  Over the last few months the market has been up a little on the day before the announcement.  After the announcement the movement has been a mixed bag.  Sometimes up and sometimes down.  What will it be this time? 

The VIX looks in position to spike up and possibly take out its highs of last year.  Its weekly 200 SMA is at 18.97.  A weekly close above that would be first time that happened since 2011.  Many would say we are overdue for a spike in volatility.  Despite today's bounce the world situation does have some unknowns.  I think the bulls need to prove themselves here. 


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