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Thursday, October 2, 2014

Daily update 10/2

It looks like selling got exhausted this morning.  Here is the daily SPX chart.

SPX went down to the lower trend line and bounced.  That line goes back to the 2011 low.  I changed the color and indicated the year the lines start.  That is a pretty good looking candle for a low.  The bulls just need to show up tomorrow and a tradeable bounce should be underway.  Let see how the futures chart looks.

The futures are up a tad as I write this.  At least nothing bad has happened so far tonight.  The prior four bars all closed in relative proximity despite probes lower.  Some dip buyers were active here.  Will they win the battle?  Price is clearly stretched a bit on the down side.  A lack of bad news should be all it takes to get going on the upside at least for a bounce.

There have been two technical conditions I have talked about on this blog numerous times that have been marking lows.  One is the close below the SPX 100 DMA.  That signal activated yesterday.  Even though we traded significantly lower at the end of the day SPX made it back above yesterday's low.  That keeps that pattern alive.  A close below yesterday's low before closing back above the 100 DMA would be a pattern change.  The other signal has been a cross above the weekly 200 SMA on the VIX.  This signal has been working since the market rallied off the 2011 low.  That is a long time for any pattern to repeat.  I still have not seen any reference to that anywhere.  I find that a bit surprising as long as it has been working.  The VIX crossed that MA a bit yesterday and got a clear cross early today.  We just need a close tomorrow below 17.48 to keep the pattern intact.  Either of these signals has sent SPX to new highs.  With both of them firing this week it seems very likely there will be some buyers here.  People usually keep doing what works until it stops.  The odds should be pretty good for a rally.  Whether SPX will make it to new highs is another matter.  There were some serious technical divergences at the highs before.  The sellers might show up again once we have worked off the oversold condition. 

We now have  a nice range between yesterday's low (1941) and today's high (1952) to work with.  A close outside that range should see some follow through.  The bulls made an attempt to retake control.  Lets see if they show up to finish the job.


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