Low's retested after bear setup from Monday

We retested the SPX 1040 support again as the down wave sold off hard today with a -3.10% decline, smashing through the lower channel support.

Market fears another look

The markets stayed put today, so the channel wasn't broken. As we look at what happen next, here is a look at a popular bond ETF, TLT (20yr bond fund). So the theme is that when the Fed reduces rates bond prices rally and stock prices fall, another scenario is when the world is afraid of bad things they run to the safety of the US Treasury (Bond prices rally and stock prices fall). Notice that TLT has rallied to high fear levels of late 2008, and 2009 and is retesting recent times high of 100. This would be something to watch closely. Now, should it fall it would be equally interesting to note if Stock markets still participate in the rally or whether the correlation breaks down near term.

Potential channel formation

We bounced off 1067.89 which isnt exactly a support level, and although the market internals show a potential reversal I'd be cautious and looking for further confirmation of the bounce. Made a chart update, the yellow lines are parallel and a potential channel forming if the bounce continues.




And the daily chart, a lot of resistance up ahead as the potential of a death cross looms.

Yesterday, we smashed through my support lines, the SMA(50) and the SMA(200) on the hourly. This might spell a change in direction with the peak open on Monday down to 1086 (50% fib retrace level) or more. The break below 1100 support is significant.

Yuan peg - Chinese checkers

Back after a week.

SPX broke through the 1100 resistance over the last week. Over the weekend the Chinese announced their inclination to allow the Yuan to appreciate. Markets propped up +120pts at the open only to lose steam at the end. Some reports suggest that initial enthusiasm waned at the realization that the appreciation would be over a long term not quick (Economists have claimed that the Yuan should be 25 - 30% stronger vs USD)

Technically speaking it was interesting, as the market opened up above the 50% retracement line which was a good sign that it would carry the rally higher towards the 61.8% level (which is much higher at 1225) or atleast to the Jan peak in the near term. The view is supported by the golden cross on the hourly view, as the SMA(50) crosses the SMA(200) from below at about 1100. Also the SPX closed at the support line which might provide some support for an upward move tomorrow. On the daily the current level is below the SMA(50) so there is some room for moving higher. What happens we shall find out.

While my view is that the rally shall continue some more, a reversal from the 50% retracement (or close) as we see today might spell the end of the current rally, if the bears take us lower it shall be in size as I've commented earlier.

1100 up ahead

Below is the hourly chart of the SPX, the bounce off the Feb 5 low appears to have been reaffirmed and the upward resistance of 1100 looks to be tested yet again (for the 4rth time).

SPX bounce off Feb 5 lows

Bit of a break there. The markets plunged -450pts on DJI between friday and monday to recover some ground +123.49 today. Bearish outlook is reinforced at the moment with major indices below their 200 SMA

Levels vs SMA(200)
DJI 9939.98 vs 10304.65
SPX 1062.00 vs 1107.16
NASD 2170.57 vs 2236.09
RUT 617 vs 632.76

The Russell 2000 small cap index is the latest to turn bearish (below the 200SMA on the daily close). This is indicative of the broader trend.

Looking at the charts, we have to look at an important support level of the Feb 5, 2010 low.

Levels Feb 5 vs Current
DJI 9835.09 + (but has moved lower on last two days)
SPX 1044.50 + (1042.17 today's low)
NASD 2100.17 + (not breached)
RUT 580.49 + (not breached)

While DJI (clearly) and SPX (in a minor way) have breached the support and RUT turning south we need to be very cautious about this down leg continuing below the Feb 5 support.

Below is a quick chart of the SPX showing some levels and the recent EWT structure.