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Friday, October 30, 2020

Time to watch for a short term bottom 10/30

Some say election jitters hit the market the last couple of weeks.  Maybe that is true, but I believe the sell off this week was largely virus related lock down  fears.

If you have been a long time reader you might recall how SPX started a multi year series of making bottoms every time it hit the 100 DMA starting in 2013.  Notice in this chart the last short term bottom was at the 100 (white line).  SPX closed below that line on Wed., but it still has not confirmed a break of that MA.  When it fails to confirm a break after two days, the probability of a rebound back above the MA increases considerably.  I don't have specific stats, but watching this kind of price action around MAs over the years is what caused me to look for confirmation of a break in the first place.  Way more often than not this pattern leads to a rebound back above the MA.   Breadth was -59%.  That was considerably less bad than the -89% on Wed.   The price bars are blue which indicate SPX closed below the lower Bollinger band indicating price is extended on the downside.


The futures show a bullish engulfing bar followed by a retest of the low.  This has some potential to make a short term bottom.  Also  notice the -DI (red line bottom panel) has turned down below the ADX line (blue line) from a very high level.  This technical condition often leads to a short term oversold bounce.

The red line is way up into oversold territory.  This is definitely a bounce worthy condition if not a true bottom.

We have a good setup for an oversold bounce.  SPX is in a good place to turn a bounce into a true tradeable bottom.  The door is open for the bulls to do something here, but they need to step through that door early next week.  Should we fail here the next target down is the Sept. low at 3209.  If that fails to hold a trip to the 200 DMA (3129) is likely.

Peace and good health to all.  Have a great weekend.


Tuesday, October 6, 2020

Stimulus on hold 10/6

SPX tanked after it was announced negotiations on stimulus were put on hold by the president.  The result was a key reversal day down.

Breadth went from +70% before the announcement (with SPX at a new bounce high) to -59% at the close.  That is quite a reversal.  

 The futures are holding at the 50 SMA for now.


The bull pressure chart show the mid term (middle) and long term (bottom) lines are still bearish.  Only the short term lines (top) have a bullish cross.

The breadth and ticks have shown decent strength on this bounce.  However, there has been some short bursts of selling as well.  I thought some and maybe many people were buying expecting more stimulus.  Until that is back on the table, I wonder if buyers might be a little less enthusiastic than in recent days.  Many news events are short lived and are quickly retraced.  Every once in a while something comes along which lasts for extended periods.  The market is a little vulnerable as the bull pressure chart shows.  The next couple of days will be important.  If people were buying for reasons other than stimulus, then the bulls should come back out to play in the next day or two.  Otherwise, we are likely to see a retest of the recent low.  I am in wait and see mode until the market decides whether this news is important or not.  Maybe the talks will restart and send the market higher again, but we can't predict that.

Peace and good health to all.



The information in this blog is provided for educational purposes only and is not to be construed as investment advice.