It looked as though the market was going to follow through on the bear market this morning or at the very least consolidate. When prices began to descend after the midday top, somebody initiated a buying program on news, squeezing the shorts before the market fell apart. The news was that the European Union might postpone a crisis with a bank recapitalization and the result was a 4.1% market boost to close the day up over 2%.
A great quote I found on Bloomberg.com:
“People are looking for optimism anywhere they can get it,” said Christopher Bury, co-head of fixed-income rates at Jefferies & Co., one of the 22 primary dealers that trade with the Federal Reserve. “You have these random stories and the market reacts, but how many times have we been down this road where these are just words?”
"Just words", they have been all too powerful and have exacerbated the volatility of the last two months. We will have to see if today's words were like a sip from an energy drink, giving an instant boost followed by a quick return to normal when it wears off; or, whether it will be the match light to kindle the start of a more significant bear market rally.
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STOCKS: Based upon a 9/22/2011 Thrust/Trend Model SELL signal, our current intermediate-term market posture for the S&P 500 is bearish. The long-term component of the Trend Model is on a SELL signal as of 8/17/2011, so our long-term posture is bearish.
Regardless of the reasons why, the market did seem to have a key reversal day on high volume. We annotated an intermediate-term declining tops line that we believe is credible resistance if this is the start to another rally.
The CVI cleared deeply oversold conditions and is now neutral. The STVO is slightly oversold and supports the idea of a small bear market rally to clear those oversold conditions. The VTO is moving lower out of neutral but is not oversold.
The New High/New Low chart illustrates that while we had a big close up, new lows expanded quite a bit with only one new high being logged. (Note: the new highs and lows are based on interady prices, not closing prices.)
Bottom Line: Today looked very much like a key market reversal, but looks aren't everything. We still see underlying weakness with new lows expanding, intermediate-term indicators not yet oversold and our Thrust/Trend Model SELL signal in place. Any rally we get off of this bounce we suspect will exhaust itself at or before the declining tops line drawn from the last July high.
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CRUDE OIL (USO): As of 5/16/2011 United States Oil Fund (USO) is on a Trend Model NEUTRAL signal.
USO closed up but was unable to overcome horizontal resistance. This looks like a technical snapback to resistance. If so, technical expectation is for it to resume lower.
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BONDS (TLT): As of 4/26/2011 The 20+ Year T-Bonds ETF (TLT) is on a Trend Model BUY signal.
Bonds pulled back today, possibly completing the second top in a bearish short-term double-top formation. However, I can't get excited about it until I see a retest and break down below the rising bottoms line.
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Technical analysis is a windsock, not a crystal ball.
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