The breadth charts gained back some despite a weaker day, they now have a +6 consolidated score. The market is consolidating under the hood and it showed in Wednesday’s price action. Today the market will show us how strong bulls are.
So far this morning is off to a positive start with the futures up. We have a bunch of news this morning to get through so that will help determine the market open.
The price action over the last few days will help us diagnose this bounce and determine if it is a new bull leg or a dead cat bounce. (BTW the strength suggest the former as we are now in Zweig overbought which has only happened 4x since March 9th 2009).
First we will zoom back the camera and look at the SPX from a daily shot from the 1220 highs (remember those days?). Since then we have taken a journey down to 1040, bounced, retouched on June 8th and have launched into an upward leg. We are now focused on that 1090 to 1119 area to get a feel for the strength and duration of this run.
Now zoom in and look at the intraday 60 minute chart.
We have that same area 1090-1119 bounded with red and green horizontal lines. This is the next area for a break out of to determine market direction. If we break above 1119 the bulls win and up we go to the next test area. If we fall below 1090 then the bulls are still in control and the world is falling apart.
There is natural strong support at 1103.75 area and I would suggest that we might have to re-test that area before making our onward journey. I would be a buyer there on a good green candle. This 1110 area is the 38% fib level from the April highs to the june/may lows and has been acting as a magnet and is first level of support today. After that on the downside is 1103. Last stop for the bulls to keep their crown is 1090 which is a must hold. On the upside look for 1119 to break. Above that is fairly clean air up to 1126 then 1130.
Yesterday I wrote that I expected us to test 1090, today I am not so sure. Yesterday’s action was actually very strong despite that one testing sell-off. Although I wouldn’t be surprised at a test of 1103 (in fact I think it would be healthy), it looks to me that we are going to launch through 1119 today and close up in that 1130 area. But in case we don’t we all have the downside numbers.
Trade safe.. use stops.. they are rest areas for the mind.
