Higher highs and lows on $SPX the beginning of the summer rally? [Chart]

Good morning.

 

A mixed day yesterday.  Did the bulls win or the bears?  Maybe nobody has to win every day.  There was some encouraging news in yesterday’s performance for those who lean bullish.  First it is the first time in over 10 trading days that we went two days without putting in a new low.  Downside momentum has diminished for the time being. Bad news is we are in a stair step pattern and the best the bulls can do is a 3% correction from the downside direction and the down down momo could resume at any moment.

 

Back to the bull news though.. looking at the SPX chart you can see we have even made some higher highs and higher lows on the 15 minute chart.

 

And more good bull news..there should be included in this mornings newsletter, or on the website for you browsers, a copy of Tuesday’s Zweig chart, it had a little bullish divergent bounce.

 

If the bulls can fight off this gap down opening that is developing and put in a little follow through the fact that they could not hold yesterday’s high can be forgiven.  There is no economic news today so the markets are on their own today.

Quote of the day:
Most people would rather be certain they’re miserable than risk being happy. – Robert Anthony

 

Chart

Score

 Day-1

Change

40 DPI

-4

-4

0

52 WNH

+2

-4

+6

10 DHL

-6

+2

-8

Total

-8

-6

-2

 

The breadth charts continue to diverge.  Gap ups and mid-day reversals can do a job on breadth charts.  The most important charts for such a day are the 40 DPI chart which captures the close and the 10 DHL which captures both extremes.  The 40 DPI remained unchanged but the 10 DHL slid 8 points into the bear’s den.  That is disturbing. Even the NYSE which has been strength joined the ranks the bears on yesterday’s market action.

 

The charts are setup now such that any strength today will turn the breadth charts bullish (except for the DPI which would most likely need a multi-day rally).  If we can not build strength today than the market is really broke.  Not just a bear market.. a broken market.

$SPX chart:

 

When I was just a young lad I lived in the outskirts of Philadelphia and would take in the train with my friends to go to the Franklin Institute, the science museum in the city.  One of the displays was a demostration of the effects of gravity on your weight depending on which planet you were on.  It was a scale you stood on that said Jupiter and you would step on it and magically you went from 80 pounds (i was a young small lad) to 800 pounds.  It also would enlighten you on how high you could jump on Jupiter (which wasn’t very high).

 

Yesterday we had Jupiter type gravity that pulled our nice open and rally back down to home planet.  The bulls proved both incapable and eventually unwilling to hold the top and we slide back all afternoon back into negative territory.  There was some gathering strength into the close and we closed the indexes mixed with he RUT and Transportations in the red and the vast majority in the green. 

 

The net effect was a sideways day which I like because I do not have to redo the charts.   Currently we are closing a morning gap down and if we can hold here (-3 SPX pts) we should open fairly flat in that 1027 area.  Upside from the open is 1029 from there the bulls would need to run up over 1040 and eclipse yesterday’s high of 1042.50.  To seriously start a rally we need to get up and over 1049 and then some fun could begin.

 

Downside, another day same target for the bears, 1012.  If that breaks then 1000.  If that breaks we begin to enter the zone of Head and Shoulders fulfillments that I have seen ranging from 800 to 900 depending on how people measured.

image

The charts remain weak.  The trend is to the downside so the default direction is down.  But we are extremely oversold and are expecting a 6% rally from the 1012 area which would take us up to 1071.50 SPX, but expectations are not reality and the breadth charts are not supportive of  a bounce and remain biased to the short side.  I mentioned a couple of days ago, the strength of the slide from 1130 can stretch that rubber band a long ways and we would start seeing the “$SYM is down now xx days in a row and that has never happened posts”.   We have arrived.

 

Careful – marlin aka RedlionTrader

 

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