Yes. Nice rally back for $SPX almost to last Friday’s closing number. So does this mean that market dynamics have changed? I don’t have a clue. Really. As long as the $VIX remains in the 20’s then one just has to expect more volatility going forward. It sure looks like the market is trying to put in a bottom here and the market is certainly acting like it wants to put in a bottom but with all the thrashing about how can anyone say for sure. However, this is a very dangerous market. Yesterday THEY ran all the stops the shorts had in place and then THEY turned around and ran all the stops the longs had in place. Today THEY rallied the market on news that Spanish bond yields are soaring and that Italy may soon be putting it’s hand out to the EU loan sharks. Really?
Meanwhile, in another part of town:
We have a couple of problems. Today’s rally should have turned every single breadth indicator north, but it didn’t and so we have some negative divergence going on.
$NYHGH went backwards today.
$USHL went backwards.
4wk New High/Low Ratio went backwards.
Cumulative 4wk New Hi-Low Index went backwards (T2123 at Freestockcharts.com).
In a strong market, all breadth indicators should be moving in sync with the market and so when you see negative divergence you just have to really pay attention. One day going backwards may not amount to anything, but if these, and other, breadth indicators are decoupling from the market, then there will be trouble.
Chart of $SPX showing that the 9EMA crossed up through the 20MA today. Normally this is a pretty good buy signal and I have traded this set up for quite some time. You can see on the chart that back at the first of May the 9EMA crossed up through the 20MA with another ‘buy’ signal. Unfortunately that signal only remained valid for about five sessions before reverting to a ‘sell’ signal. So if this current signal is real, then it should be just as real Tuesday and Wednesday of next week.
Also, I’ve drawn a line in the 1335 area and it’s going to be important for $SPX to close above that level in the next few days. If $SPX can do that then that will be proof that it wants to go higher. A close up there would also give us a higher high. We got a higher low with yesterday’s close but that is meaningless until we get a higher high. You start to see a series of higher highs and higher lows and that begins to look bullish, but we’re not there yet.
I sold my TQQQ today mainly to reduce my risk exposure. I’ll keep the TNA for as long as I can, which may not be very long. If the chart of $SPX continues to show improvement, then I may add a little more, but even so I will keep the position on the small side, if you catch my drift.
Be careful. The market has been showing its mean side for more than two months and this isn’t likely to change overnight.