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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 31, 2011
Current Strategy:
Not surprisingly, the bulls are attempting a rebound this morning. With no new negative headlines out of Egypt over the weekend and the bears' initial efforts having failed; it now appears that some shorts are running for cover. The questions now are if the bounce will stick and how much ground the bulls can recover. The bull camp is currently happy that the 1280 level has been recaptured. However, old support becomes new resistance in this situation, so we will need to continue to watch the action closely. Remember, the bears could easily regroup here and make another charge. And if our furry friends were to succeed in pushing back to the lows of the days, it is a safe bet that the shorts would become a bit braver.
We would consider being short-term buyers at: A close over 1300 on the S&P 500
We would consider being short-term sellers at: A close below 1276
Trend and Momentum Indicators:
Short-Term Trend: The short-term trend is currently in a state of flux. Watch those support and resistance zones.
Intermediate-Term Trend: The intermediate-term trend took a hit on Friday, but so far at least, it is still in pretty good shape.
Market Internals: Our TBC models have both moved to negative readings, which if the market doesn't rebound strongly today, would argue for a continuation of the pullback.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: Our momentum models have weakened a bit, but have not flipped to negative at this time.
Support/Resistance Zones for S&P 500:
- Current Support: 1276
- Current Resistance: 1300
Early Warning Indicators:
Overbought/Oversold Condition: From the near-term perspective, the overbought condition has been worked off. However, stocks remain very overbought from an intermediate-term standpoint.
Investor Sentiment: All the talk about a pullback lately, when combined with Friday's action has taken some of the froth out of the indicators. While fear is not rampant, it is good to see some trepidation back in the game. The thinking that stocks would do nothing but rally this year was getting a little old.
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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