The S&P 500 has now closed below the 50-day EMA for a 3rd day, and this is an eye opener.  The bearish antennae are picking up a stronger signal here, but we may have until the end of the week for the final answer.

The index has moved basically sideways since the sharp sell-off and we often see this type of shallow consolidation after a sharp decline.  Sometimes they resolve to the upside, and some to the downside, but during a bull market we'd expect a positive resolution - That is unless the character of the market changing before our eyes. 


                     Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

During the 2008 bear market, we did some of these sell-off / consolidations reconcile to the downside, but during a bear market you'd expect negative results.

 
                    Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I could be completely wrong, but one convenient resolution would be that the S&P 500 resumes trading within the old trading channel.  That would give the index a chance to move up the 1120 area.  Speculation, of course, but there is some support below and the market is still quite oversold.  Plus, it would probably be the least expected outcome, and oh how the market loves the do the unexpected.

                    
                     Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

As the title said, I plan to give this market a few more days to figure itself out before acting.  I wanted to give it until the end of the week to try to recapture the 50-day EMA, and with today's FOMC meeting, and tonight's State of the Union address from Obama, anything can happen. Also, it is looking very likely that Bernanke will be reappointed.  Intrade now has the odds at a 97% likelihood.

Bottom line is, bull markets tend to resolve things in a bullish manner.  Right now we are still officially in a bull market and even if that is going to change, bull markets rarely end with a sudden nose dive from the top without a test of the highs, or a test of the new resistance from the old support lines or EMA's.

My question is more along the lines of, will the bounce move above the old support, or will that be the area to sell?  Of course that is a very aggressive stance, and it may not be the best one for everyone else.

We're heading into the latter part of January, which has been pretty strong historically:


                      Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk           

But then we have to deal with February, which isn't quite as investor friendly...


                      Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk

Thanks for reading.  We'll see you back here tomorrow. 

Tom Crowley

If anyone is interested, I set up a fundraiser at MercyCorps for the victims of the Haiti earthquake.  I always feel so helpless in times like these so rather than just giving a few bucks, I thought I would do something a little more by providing a vehicle for our readers to help also.  It looks like a terrible situation, so if we can spare a couple of bucks, it will add up.  It is a quick and painless process.  Thanks!

                                  

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