alice, nftrh

Stock Market Update (Plan on Track)

Yesterday the S&P 500 closed once again within the range we have been watching, that includes the upside (1993.48) and downside (1903.07) parameters to a test of what we have called ‘Resistance #2’ at 2040 (Resistance #1 was 1975, which SPX is still dealing with on its bounce attempt).

spx

Normally, we could look at the Symmetrical triangle as a continuation pattern and be cautious about it, but as noted there have been bull factors in play…

  • The incredibly over bearish states of Rydex traders and Small Speculators, as noted in the last 2 NFTRH reports, as well as an over bearish ‘dumb money’ aggregate vs. ‘smart money’.
  • Semiconductor index led the way down and as noted in NFTRH 359, has resumed upside leadership in the short-term.  Yesterday furthered that cause:  Semiconductor Index: A Leader Returns.

Add to that the states of the daily charts of the SOX and others, which look more bullish than the SPX.  SOX is firmly in a daily downtrend, but as we noted during the correction (which tested long-term support), it can bounce to the 640-650 area.  If bull spirits get repaired to a decent degree, it could even attack the SMA 200 around 680.  Notice how MACD and RSI look better than SPX (RSI went green, 50+, yesterday).

sox

Russell 2000 looks constructive to continue bouncing as well.

rut

Former star leader BTK is resisted at the SMA 200, but has a decent MACD and a push through 3900 could load a bounce destination in the 4100 to 4200 zone.

btk

This morning global markets and US futures are positive on Asia relief (click graphic for live view).  Bearish Wax on, bullish Wax off.  Given the unsustainable bearishness that cropped up globally and in the US, these pressures needed to be released.

stock markets

Bottom Line

Unless pre-market is a giant head fake, it looks like the routine series of alternating big up days and big down days could end today as stock markets look to continue yesterday’s bounce.  That would be notable because it could break former leader items like the Russell 2000 and Biotechs to new bounce highs (SOX is already at a new bounce high).

What this would also do, if it plays out, is load SPX 2040 (+/-), which holds significant overhead resistance and has been our ultimate ‘bounce’ target.  If at such time investor psyches have been sufficiently repaired and a new bull story emerges to tell people not to miss the boat, a ‘next shoe to drop’ short setup could emerge.

But we can also watch for the alternative, which would be that the flash events that cropped up over the last month were sufficient to reset the bull market, sentiment wise.  A lot will depend on the range of ingredients to be reviewed at the time, which include not only sentiment, but economic fundamentals, financial market indicators, etc.

Speaking of indicators, we are still waiting for the VIX to drop to the 20 to 22 range.  Yesterday it closed at 24.90.  We have been anticipating a rise in SPX to 2040 and a drop by VIX to 20-22 to bring the next lower risk bear setup.

Click to expand this really cool chart.

vix

There really has been no rush to get on the bear case. A confirmed bear market would give plenty of time and setup opportunities, to take positions. As noted recently, we do not have a confirmed bear market because the October lows are intact.