Wednesday, May 20, 2009

More Pain to come

Well, yesterday we had a bit of a chance to my anticipated direction. While we managed to close below the 912 range we still closed above 907 which is important support at this point.

I have to admit, the moves of Monday and Tuesday were a bit of a surprise to me as you could see from my post yesterday. As you remember from my old quotes "if the market does not do what you thought change your strategy" - yesterday was one of those days that changed the outlook for me. We were setup nicely for the correction to start yesterday but held the ranges.

Many have said yesterday was a distribution day to go higher. At first I was hesitant as distribution days normally involve much needed profit taking with sideways action with a slight down trend. Around noon we had signs of this occurring while S&P moved up many of the sector and trend drivers (financials, etc) were trending down showing divergence to the main index.

In the past I had mentioned about the need to move inventories from major funds. This is not yet happening but we had perfect tape buying throughout most of the day while sellers stepped in at the afternoon. We should continue seeing increased selling pressures now as we continue to move through the ranges and funds need to move those positions.

So where will we head? To be quite honest, the market is setting up to make a new high here. Bear market rally tops will rarely get retested as a double (or triple top). We will either see a stall before hand, or a new high. The market had its chance to stall Monday and Tuesday but seeing that we managed to stay above 912 for most of yesterday, with a close above 907 and an intra day test at 916 we have to assume of another push up to test the important 920 and in my opinion break this range to make a new marginal high. When I say marginal high it is referring to a very minor breach of the previous top ranges on low volume and with quick reversals.

So what to look for today? On the low end we have to worry about the 908 and the 912. At the moment we are around the 915 range so expect a GAP fill attempt - it is my feel that we will manage to stay above 910 during this move. On the upper ranges of course the 916-918 range is important that should provide resistance on the first test, however, I do expect to see a break on this range and move into the low 920 range. Here is where the market will have to make a decision.

If I was currently in a long term long position that I was able to manage to break even or profit I would hold out for higher ranges before an exit. I think many are still of that same feel as CNBC is doing a great job at expressing "nothing is what it seems" and continue to pump up the markets. Its such a sentiment game at the moment and fundamentals are left on the sidelines.

So in summary - remember that bear market rally tops will not get retested, a stall before or a new high - those are the only scenarios. At this point a new high seems to be more reasonable. The bears have one last chance left today. If we close above 912 we should see higher ranges for the remainder of the week.

5 comments:

  1. Another quick addition. 918-919 is a very important range. If we can get a test at this range and reverse within 2 hours 10 points below my bear scenarios will come back on the table. Other then that its quite bullish around here =)

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  2. samalamadingdongMay 20, 2009 at 9:32 AM

    take a look at the week of 5/4...that's your playbook on the s&p

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  3. XLF flat and trending down slight while S&P trending up.

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  4. samalamadingdongMay 20, 2009 at 10:20 AM

    xlf is up over 2%??

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