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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: January 7, 2011
Current Strategy:
It matters little whether you believe this morning's selloff is related to Bernanke being cautious on the economy, or the nonfarm payroll numbers, or even that the movement in the dollar/bond market represents a flight to quality on Europe fears. The bottom line is the bears finally have something to work with and the buyers look to be standing aside for the time being. Thus, we may be seeing the beginning of a pullback, which could last a few days. From a technical perspective, the short-term trend is wobbling but the intermediate-term picture remains sound. So for now, let's call today's action the long-awaited and much anticipated pullback that so many have been predicting.
We would consider being short-term buyers at: A pullback to test 1260ish on S&P 500
We would consider being short-term sellers at: A close below 1249
Trend and Momentum Indicators:
Short-Term Trend: For more than a month the short-term trend has been rock-solid. However, the sellers are in control at the moment and could easily create a test of support.
Intermediate-Term Trend: It is important to remember that pullbacks are part of the game. And for now at least, the intermediate-term trend remains positive.
Market Internals: Our short-term TBC model flipped back to neutral overnight but is unlikely to move lower unless things get very ugly very fast.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: Our indicators have been warning for the past couple of weeks that the internal momentum has been waning. We will now need to see if the bears can produce any "oomph" to the downside in terms of our model readings.
Support/Resistance Zones for S&P 500:
- Current Support: 1257-1260
- Current Resistance: 1280ish
Early Warning Indicators:
Overbought/Oversold Condition: While stocks remain overbought, time and some price decline can always alleviate an overbought condition. Currently it appears that these two factors are coming together as the overbought condition has been deteriorating this week. Thus, a pullback would likely remove the overbought pressure.
Investor Sentiment: The Jobs report may and the accompanying decline could begin to reduce the extreme sentiment readings. We shall see...
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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Really enjoy your ongoing commentary which is on the cutting edge of the market. Lazio Birinyi says tis week a secular bull began on 3/9/09 and will run to September 2013 based on his analyses of market history, taking S&P to perhaps 2800 by 9/2013. Would appreciate if you might comment on this some time.