We got a bottoming tail or today, your choice. That is the kind of candle you see at bottoms. For this candle to prove to be predictive, then $SPX will need to close above today's high of 1755 and even better would be for $SPX to push up above 1760 and get back inside the 1 year channel.
$SPXA50R is now at 29.60, up from Monday's 25 level. Generally, when $SPXA50R drops down close to or below 25, then the market is sufficiently oversold enough to base and then move up. $BPSPX, however, continues to drop. It dropped on Tuesday despite the 13pt rally and it dropped again today meaning that, while we wait on the next move, more and more stocks have given 'sell' signals per point & figure charting which is the sign of an unhealthy market. The 5EMA on the $VIX chart I use is now just below 20 and readings in this area have occurred at previous market turning points. Will the magic work this time?
We are, however, losing two key sectors, the small caps and the Transports. We are not going to rally without these two important sectors but these also printed reversal candles today so there is a chance they have bottomed. If these hammers prove to be predictive, then IWM and IYT should get back in sync tomorrow and off we go. If these two key sectors don't get back in sync, and pronto, then markets might bounce but they cannot rally.
Key areas to watch tomorrow: 1755 as local upside resistance and 1740 support on the downside. Which ever way $SPX breaks tomorrow is likely to be the direction we follow for a while, IMHO, of course.
That approach also indicates that while the December rally broke the 5 year trend, it bounced off the 2 1/4 year trend since the new bull market. It does not represent a large trend change, but it is very significant in that it better aligns and explains what has been happening since 2001 lows.
I am very cautious about changing trend lines in mid-stream, but I think it may be warranted. What do you think?
As someone who trades the futures, it's absolutely imperative that I get the direction right so I spend a lot of time analyzing and then discussing breadth indicators because it's important for me to know what's going on under the hood. BTW, I never was very good with targets. I just want to be on the right side of a rising trend and go with that for as long as possible. Difficult to do when there is no discernible trend.
I have noticed several leadership changes occurring throughout this pullback. First, as the Dow led the December rally, it also corrected very sharply, and more than the SPX. Now it is leading once again. Secondly, The momos are beginning to fall by the wayside, AMZN, TWTR, etc., and laggards are becoming leaders to some extent.
The VIX spiked last week at 18.99 twice, then peaked on Monday at 21.48, and failed to confirm today. That is a good indication of a possible fear climax, and recovery. This is part of the normal correction process, and usually presages the early stage of a strong rally to pre-correction levels.
On the fundamental side, a potential scenario is: Friday's jobs report will have investors skittish. The fear will be a significant miss, especially following last months 74K number. I fully expect Thursday to be weak in anticipation of that miss, possibly off 1% and testing recent lows. A Friday number then in line or above, should spark a very significant rally, about twice the Thursday selloff.
I still believe the 1 year trend, may have temporarily breached the lower channel, but is sufficiently intact as it once again held near 1740. This should serve to reinforce support at that level, as the sellers lose momentum and reason to sell. I believe this correction is most likely now on the back 9 and a hold through this week raises that probability significantly, and shifts the risk to the upside.
Regards - Glenn
Trying to come up with a pattern. Have three touch points on the left side and two on right. Maybe trying too hard. A falling wedge pattern here would be bullish going forward. Thoughts.