The recent sell off eliminated the overbought. I did not like the idea of calling for a correction
without a clear cut break of shorter term trend. The market bent down but did not break.
Today was akin to a do or die day to determine whether the market was set to break down
and head sharply lower. Lo, and behold, we get a dramatic 2% up day instead, which reverses
the nascent downtrend and leaves the market in neutral territory.
The chart link below shows a series of tests of support for the SP 500 around the 1180 area
followed by today's big bounce. This is an encouraging sign for the bulls, and if the market was
coming off a deep oversold, I would be even more encouraged. However, there was no
deep oversold, just some volatility around a very mild oversold.
I would then be looking for positive follow through. I would like to see the 10 day m/a, which
reversed up today, rise through the 25 day m/a and for the 25 day m/a to hold up as well.
Today was an impressive move up from well tested short term support, but since it may just
represent a sudden short squeeze, I think it's fair to ask for more upside here, especially
since the market is hardly overbought and could easily run another 4-5% if the upleg which
started at the end of Aug. is truly set to resume.
$SPX
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