Technical Talk: Reversing the Reversal of the Reversal
October 21, 2011
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Although we disagree with the idea that "the tape tells all," it is important for all traders to stay on top of key technical happenings on the charts. Below is our current "executive summary" take on the State of the Tape.
Technical Talk: October 21, 2011
Our Current Take:
While the day is young and things can always turn on a dime these days, it would appear that the recent reversal of the breakout is being reversed today. Thus, the 'breakout fakeout' also appears to have been a 'fakeout'... So, anyone trying to trade this market is likely asking the question, are we having fun yet? With the Dow and S&P both above the top end of their respective trading ranges, the key to today will be the bulls' ability to keep the indices above those levels into the close.
We would consider being short-term buyers at: A close over 1225 on the S&P 500 and/or any successful retest of the 1225 area
We would consider being short-term sellers: A close below 1195 on the S&P 500
Trend and Momentum Indicators:
Short-Term Trend: Although trends have proved fleeting of late, the short-term trend is clearly positive as of this writing.
Intermediate-Term Trend: Assuming the market were to close where it is now, the intermediate-term trend can be upgraded due to the S&P crossing back above our weekly smoothing (27 week weighted ma moved forward two periods).
Market Internals: Again, assuming the current rally holds up, our s.t. TBC model will flip back to positive. Note that our i.t. and l.t. models both remain positive.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: The momentum models continue to waffle in the moderately positive zone. The primary thing holding these models back has been the volume relationship, which the bulls will need to fix if they have eyes on a year-end run.
Support/Resistance Zones for S&P 500:
- Current Support: 1195
- Current Resistance: 1265
Early Warning Indicators:
Overbought/Oversold Condition: The S&P remains very overbought from short-term perspective but is neutral from an intermediate-term view.
Investor Sentiment: As we would expect, the sentiment indicators continue to deteriorate and are now neutral. However, this is a completely normal occurrence at this stage of a move.
Chart Watch:
Below are snapshots of the two main charts we watch closely each day from a technical perspective. The indicators we display on the charts below include: 50 day weighted ma (purple), 18 day weithged ma (cyan), 10 day weighted ma offset by 2 days (orange), 4 day weighted ma offset 2 periods (dashed blue) and stochastic %K using 14 and %D.
S&P 500:
NASDAQ Composite
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