Yesterday's action was not pretty. After rallying early in the day, the S&P 500 broke below the recent trend line just before the close. Any more weakness and we may start seeing stops hit and more of a panic type selling. That is a nice step toward a short term buy signal but the market action is not great for the intermediate term (1 to 3 months).
I don't want to get too technical but thought it was rather odd that we had a second "outside day" since Friday on the S&P 500. I don't hear anyone else talking about it, but an outside day isn't all that common and here we get two in three days. So what is an outside day?
An outside day
formation is where both the high and the low of the current trading day
surpass the previous days high and low. An outside day has both a higher
high and a lower low. The closing direction of prices on an outside
day is the important factor. Market lore states that prices tend to
continue in the direction of the closing prices, so a lower close is
bearish while a higher close is bullish.
Chart provided courtesy of
www.decisionpoint.com
From what I understand, the reason this is considered a
bearish formation is that it is a sign of a sort of market manipulation.
It sounds like a conspiracy theory but basically sophisticated insiders
or floor traders, whoever you may think is in the know on Wall Street,
influence the market in one direction early to get the emotional or
"dumb money" moving in that direction, when they, the "smart money",
plan to fade it or go the other way with the better price later that
day.
Take it for what it's worth but I wouldn't be surprised to see a serious
push down sometime in the coming days. A few of those smart money
indicators such as sentiment, OEX put/call ratios and short
interest are at very bearish readings. If support fails, the
emotional money will smell the fear and start to bail. If that
happens, I want to let it settle for a couple days and then start
buying. We're getting closer.
That's all for today. Currently 100% G fund. See you
tomorrow.
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