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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.

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Technical Talk: August 17, 2010

Current Strategy:

The better-than-expected report on Industrial Production could certainly gives the bulls the ball (and perhaps a reason to be) for a while as it clearly shows that the economy is not diving into a recession. However, with all the recession/deflation fears out there at the present time, there is a chance that the bears might seize the opportunity to sell into any rally attempt. But the bottom line remains the action in the bonds - when yields rise, stocks rise and vice versa. This remains something to watch closely for now. So, while the bulls have the ball at the present time, they do need to show that they can score.

We'd be Short-term Buyers At: A close above 1087 on S&P

We'd be Short-term Sellers At: A close below 1075

Trend and Momentum Indicators:

Short-Term Trend: After a couple days of basing action (albeit scary), the short-term trend has improved. And should the indices close where they stand right now, we'd rate the s.t. trend as moderately positive.

Intermediate-Term Trend: Despite the green screens, there is no real change in the intermediate-term trend. We continue to see the current market as range bound.

Market Internals: Both of our TBC models are negative at the moment but will likely improve should the rally hold up today.

• TBC = Trend-and-Breadth-Confirm Model

Market Momentum: As I've mentioned, our momentum models are based on closing prices. And frankly, the current rangebound environment makes it tough to get a read on market momentum since the market tends to move violently in both directions. But for now, the models are mixed to moderately negative.

Support/Resistance Zones for S&P 500:


• Current Support: 1080ish
  
• Current Resistance: 1100

Early Warning Indicators:

Overbought/Oversold Condition: The market remains oversold from a short-term perspective and is now ever-so modestly oversold from the intermediate-term viewpoint. In short, this setup is "good enough" for a rally try.

Investor Sentiment: Sentiment remains a potential plus for the bulls due to the extreme pessimism that has cropped up over the past week.

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 simple ma (purple), 25 day weighted ma (cyan), 10 day exponential ma (thick orange), 200 day simple ma (thin orange), standard deviation bands using 1.9 std dev of 21 day and stochastic %K using 14 and %D.

S&P 500:

NASDAQ Composite

 

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