Counter-Trend Extends

Market Overview

Friday Morning Comment:  

Trade talk optimism, options expiration, a three-day week-end, and a Bradley turn date!  That’s a powerfully bullish combination which undoubtedly generated massive short-covering rather than genuine buying when legitimate projections were reached and failed to bring anything more than a blip reversal.”

Great timing for the bulls. When the 2625 projection based on Fib retracement from the 2800 top failed to bring more than a one hour pull-back on Thursday, the bulls took over as positive trade news with China surfaced and they ran the shorts to the tune of a 70-point rally to 2675 by Friday.  

It may not be so easy from this point on, although if, as I suggested a couple of weeks ago, we are actually retracing the decline from 2941, we could then make it all the way to 2714 before this counter-trend rally is over. If Bradley had anything to do with this mini-euphoria, it can end first thing Tuesday morning. In the course of the last two days, we lost established negative divergence in the hourly indicators, but regained it big time on Friday.  The dailies are not quite there yet, but getting close. It will take a sell signal at the hourly level to turn them down.

IWM did give warning about a top slightly ahead of the SPX 2925 target, but it was short-lived.  It may be in a position to give another next Tuesday morning if it does not make a new high and SPX does. Something to watch...

Chart Analysis  (The charts that are shown below are courtesy of QCharts)

SPX daily chart  

On the bullish side, SPX has moved beyond its initial resistance band, as well as the 50-dma. However, if this was mostly the result of short-covering, the move above 2625 is a little dubious and could be short-lived. On the negative side, the index is approaching the main trend line from the top which should provide some resistance. Even if broken, it will remain well below the 200-dma which serves the purpose of a long-term trend line.  Until I see much more sustained strength, I will stick with the counter-trend labeling for this rally.

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Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of ...

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