The top chart above this post shows the daily cash S&P. As you can see the market dropped to about 1265 Monday, about 20 points lower than what I thought would be strong support at the October 27, 2011 top (green dash line).
Today's rally pushed the S&P back above that support level and this makes the break below 1295 on the employment news look like a shakeout which often precedes a big move in the opposite direction.
The other three charts provide more evidence for this shakeout -then -rally hypothesis. The second chart from the top shows the cumulative daily advance decline line on the New York Stock exchange. Unlike the Dow and the S&P this indicator did not break its May 21 low this past Monday. It also has held well above its rising 200 day moving average, another bullish sign.
The bottom two charts show the 5 day (purple line) and 10 day moving averages of the daily number of advancing issues on the New York Stock Exchange. Notice that the 5 day moving average dipped to a higher low this past Monday, thus diverging bullishly from the action of the S&P and the Dow which put in lower lows. The 10 day moving average has risen steadily from the May 21 low, another bullish divergence.
Given the high levels of bearish sentiment which I pointed out last week these divergences are telling me that the correction from the March-April tops is over. I think a move to new bull market highs has started.
1 comment:
Because it has been three years since the bear market low, and U.S. economic activity is still struggling to stay positive, I am afraid I don't see how the bull market can proceed. 0-100K jobs created and 1.9% GDP growth should have been 2010 news only.
I think the key level is 1357 (4/10 low) on the S&P 500. If we can rally through there, then I may concede that the market sees something bullish after all.
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