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Monday, February 29, 2016

Daily update 2/29


This morning SPY traded up to the .786 retrace line to Friday's high then turned tail and ran.  SPX ended the day back below our resistance line from the early Feb. high and the 50 SMA.  I am having a hard time trying to come up with a scenario that today's action was bullish.  The breadth was slightly positive despite the sizable down move.  That indicates the damage was largely being done in big cap stocks.  The new highs dropped way down to 41 while new lows came in about the same at 26.  Today was a serious loss of momentum by the bulls.

The futures made two attempts to get above the red resistance line, but could not sustain it.  They ended the day right at the 20 SMA.  Since we have not broken that MA yet, there is a chance the bulls could save the day tomorrow.  That seems like the lower odds scenario to me though.

The green count slipped considerably today, but is still slightly above 50.  The loss of momentum by the bulls is obvious.

To continue higher I think SPX needed to hold above the 50 DMA and its early Feb. high.  On Thursday I wrote

"So everybody that rushed into shorts and placed a stop above the 2/22 high got stopped out today if they stayed in the trades.  Ouch.  Now the internals are fading so this is a much better setup for shorts.  A narrow range day tomorrow, preferably a doji bar, would add to the setup.  If the market can manage to keep going higher the next target would be the 1995-2000 area.  A strong up day tomorrow would probably send us on the way.  I just think that will be tough to achieve with the VIX already below 20."

Further upside was indeed hard to come by.  They sold into the gap up the next morning and sold into the short lived rally this morning.   I think it is likely the rally is over.  The market did its job.  It flushed out a bunch of shorts and sucked in a bunch of new longs.  SPX is possibly forming a lower double top.  Those can be quite negative patterns.  I think the bulls need to show up in force tomorrow morning to save the day.  That seems unlikely.  A down day tomorrow is likely to send the market back to the lows and I would expect that double bottom to be broken.


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