What a reversal today. The Sp was starting to lose trend line support at 2070/2075 with a reading as low as 2052. A full percent below. Normally when we see a full percent below it's the real deal but that's why I think it's so important to look at things at the end of the trading day and not intra day. Many a head fake occur during the day but in the end it's how we close on the averages that matter. What a save by the bulls for a close below 2070/2075 would almost certainly lead to another test of 2040 and the next test will be the fourth time down and that can often be the time when things break down completely. The bulls needed to act and act they did as the reversals occurred almost everywhere although the banks were probably the poorest of the sectors today that really matter. The news out of China regarding the Yuan the culprit there but overall there were enough positive reversals to allow the Sp to close back over 2070/2075. The SP 500 continues to hold in a choppy Triangle best seen on our Daily chart below.
Note the Hammer that printed late day:
The market simply wearing everyone down but that's the job it's trying to do because it wants to keep the bears from getting too aggressive while allowing more and more to turn away from being ultra bullish. Create some real disappointment for the bulls and you get a market that meanders but unwinds yet still doesn't break down. At least for now anyway. So when all was said and done today we saw a market that gave the bears a lot of hope early on only to see that hope wiped out while the bulls were feeling the blues early on but ended up feeling joyful at the close. The market to absolutely nowhere continues on.
Now lets take a look at the Dow. The Dow has been down 9 out of the past 10 sessions but note the strong hammer and hollow candle that printed during todays session. We view this is a bottoming candle we would expect to see a move higher the balance of the week:
Sentiment continues to improve. The constant back and forth with head fake after head fake is really taking its toll on the bulls. The bull bear spread declining rapidly now. Just a month back we were over 30% but now we're down to 21% Bears increasing slightly. Bulls decreasing slightly but this is now a trend and it's really starting to add up. Good news for the bulls. Over time a reading sub 10% would be great but that may not be in the cards, especially if can't break below 2040 on the Sp but we'll take what we can get. It was very tiring seeing levels above 305 week after week for nearly eighteen months save two weeks from last October. Now we have three consecutive weeks below 30%. Great to see a number almost in the teens while the market holds above 2040 on the Sp. If we break hard below 2040 it won't take long to get the level well below 10% which should shorten the amount of time the correction would last but we'll deal with that should we ever get there. For now the market is correcting froth and emotion through a very tiring and emotionally draining base in its seventh month. The longer it lasts the better it'll be for the bullish case longer term. You may not like this process but it really is good medicine for the market if you want this bull market to possibly continue a while longer.
So where do we go from here? Impossible to say since all we know for the year 2015 is this ridiculously large and annoying base that trades more towards its center than anywhere else. Sure, we get tests up to the 2134 area and down to the 2040 area but in the end most of the time is spent in a narrowing range near 2100. We had another test today towards 2040 but it held just fine. The best advice I can give anyone in this type of market is to buy weakness and to not play all that heavily. Lots of whipsaw with the froth stocks and for that matter, many non froth stocks seeing much higher volatility in terms of day to day swings. Just look at Aapl these past few weeks and especially today with an amazing price reversal. A nearly ten point day for a stock not known for such intense day to day price movement. Higher beta stocks are flying all over the place. It's enough to make anyone's stomach turn a bit. Keep it light. Nothing too aggressive as we dance around the volatility. Day to day folks for now. The reversal today should lead to at least a small rally from here. We shall see.