S&P 500 - September 7, 2010

Did the money managers come back from vacation to sell?

Well, you know I don’t really believe that. World of finance does not sleep let alone go on vacation. Market gets overbought, runs out of shorts to squeeze and sells. That selling may coincides with the prophecy of some fortune tellers of the market, and if it does, it shall be coincidental and nothing more.

In an intraday post of September 3, I said:

“I think a lot, if not all of shorts and Hindenburg aficionados should be out of their shorts licking their wounds. Whoever is still short is probably gonna duke it out, or has it all hedged and can easily await a pullback.”

And

“If I am right, from here on, we should see what bulls are truly made of.”

In an intraday post of September 3, I said:

“Spikes like this are not typical of a bunch of drunken bulls giddily buying shares of XYZ -- more often they happen as some hapless short peters under the weight of his losses

If I am right, from here on, we should see what bulls are truly made of.

I thought some profit-taking/insurance/hedge in the euphoria of this Friady morning might not have been a bad idea.”

In the regular post of September 3, I said:

“Short term breadth is overbought. 60-min chart is overbought. So, if bears are serious, they should attack and short pretty soon, failing to capitalize on overbought condition may be interpreted as an indication of weakness on the part of bears.”

So, the market sells.

This is a weekly chart


The weekly frame is neutral and can roll either way.

This is a daily


A pullback from overbought levels while price had hit the trend line passing through April and August peaks.

The daily price posture has a positive tone to it but the situation is not very firm as quite a bit of price consolidation, or advance is needed to close the gap between negatively aligned MAs.

I wouldn’t like it if bulls spend too much time below 1085-1090.

This can easily turn and continue down. If price cannot recover soon, and if bulls cannot hold 1085-1090, then I would like the bulls to at least hold the area I have market on the chart below


Daily volume shrank. Daily breadth was poor.


A lot will depend on how market pulls back. We noted that weekly price looked neutral. Some broader measures of breadth also look neutral, or stuck in the middle, if you will



The move from recent low around 1040 has been impressive in terms of price and breadth recovery. But I think most, if not all of it was on the back of shorts. That’s OK, rally’s start somewhere, somehow. Now, bulls either show us something bullish on their own, or consolidate for some time. If they are about to consolidate, I would like them to stay in the area I identified above. I also would like them not to let breadth figures lapse too badly.

For example, I would like the Pct of stocks above 200 MA to not drop sharply, or McClellan’s to not drop deeply below 0


This is a 60-min chart



The gap of September 3 is now filled.

My levels for now are 1085-1090, and then 1065-1070.

This is a 5-min chart I have used for intraday posts


Today, with price stuck in a sideways chop, I posted intraday and said that I thought the correction might have more to do on the downside. Soon after, index dropped some points into close.

So far, it looks like a correction. It can correct more in terms of price and time. I just have to wait and see how it unfolds from here.

The funny thing about this market for a long time has been that the moment shorts are creamed for good, market falters. It’s like bulls are in need of a perpetual number of shorts to squeeze into rallies.

If I am correct on that, it will be hard to regard the market as an all-out bull – more like a chop-shop. It may tilt up or down. It may chop really wide and tradable ranges but still a chop shop – hard to make money in a chop shop.

OEW pivot support at 1090 and 1058. Pivot resistance at 1107 and 1136.

Long term trend is up. Mid-term trend is up. Short term trend is up.

Have a Nice Day!