I have marked the top of the first rally after the crash low. SPX has not been able to stay above there. The yellow arrows mark back to back strong breadth days. As you can see the market made short term tops the next day. Now the 50 SMA is just a few points above. It is not hard to imagine SPX smacking that tomorrow and coming to a dead stop. Sellers put their hands in their pockets after yesterday. New highs increased to 52 while new lows dropped way down to 20. A third strong day here could change the technical picture. I suspect that won't happen though.
The futures were able to climb above the upper Keltner channel which is something they have not been able to do the last few weeks. This time they did not get a blue bar until after they were well above the channel. They have not reacted very well to blue bars on the upside since the crash.
Lets look at the internals.
The McClellan oscillator is slightly more overbought then it was at the last peak. However, it needs to get over 200 to give us strong odds of a successful test of the Aug. low. While we got close to the low it did not get there so technically it still has not been tested. The 10 DMA breadth lines still have a negative cross which is quite unusual with the McClellan this strong. I found two similar instances in the last 15 years. Both of them were in late 2008. Obviously they were not associated with making a major bottom. I think that will turn out to be the case here as well.
The green/red bar chart gives the bulls an 81 reading tonight. That is the highest since the crash. We are clearly overbought technically, but still below the 50 and 200 DMAs. That is often a negative situation.
Many people seem to be convinced we had a successful test of the low, but his two day rally was really built on bad economic data. Is that something that will get bulls to keep pushing prices? This week earnings start up. That may change the mood of market participants. Another strong day could changes things, but at this moment we do not have the technical strength to indicate we have made a major bottom. I think tomorrow is an important day. If we make another top and start down from these overbought conditions we are likely to get to the Aug. low this time. If the bulls come out to play and we get another strong day it could change the picture dramatically. What will it be?
I think this chart is another indication of why many people do not believe in this recovery.
Since 2007 we have added 1.5 million waiter/bartender jobs while losing 1.4 million manufacturing jobs. Does that sound good to you? The economy is clearly not ok.
Bob
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