Daily update 2/1

The bulls gave it a try out of the starting gate.

The opening gap up and rally after the open managed to just close the island gap in SPY.  The sellers showed up immediately and sent the market into the red for the day.  That indicates we have strong resistance in the 228.51 area on SPY.  SPX continues to find support at the 20 SMA.  Breadth was slightly negative.  New highs increased considerably to 154.  Some investors were selling into strength and some were buying the dip.  The market is being held up by strength in various sectors over the last few weeks.  Almost every day there is one sector up strongly (today was the SOX). However, the sector that is strong is different from day to day.  The market is churning here at the highs which is usually indicative of distribution.  I think the risk of a pullback in the market is rising.

The futures attempted to climb above the 20 SMA, but failed.  The 50 and 100 SMAs are holding for now.  I wonder how much longer they will be able to do that if the bulls don't push the market higher.

The green count dropped somewhat ominously today.  The red count increased, but remains below 50.  Notice the intermediate indicator in the bottom panel also appears to be turning down.  The internals are weakening just a bit. 

The short term bull pressure chart shows there was a lack of buying enthusiasm on the recent trip to new highs.  The intermediate indicator has come back to neutral.  Support for this market is slowly eroding away.

The low last Feb. was really a double bottom structure.  The initial high volume climax type day was 1/20.  The period between that and the 2/11 retest low was most likely some accumulation by smart money.  We are past the one year anniversary for the early buyers.  Those same buyers are sitting on some nice profits.  Will some of them feel the urge to take some money off the table now that they will have the lower capital gains taxes?  We can't know the answer to that question, but it is a possibility.  For now the market is in neutral awaiting a break down or another break out.  This morning's failure after closing the gap raises the odds of a break down at least somewhat.  I am going to be watching for a confirmed break of the 20 SMA to indicate the bears are taking control in the short term. 

Bob