$SPX 04/04/2014: Consolidations don't breed rallies, Part II
I have to tell you that I was confused by the 5pt gap up in the S&P futures last Sunday evening. I was further confused by the intensity of the rallies on Monday, Tuesday, and Wednesday. When you see a rally of 33pts over three days on nothing, you just have to wonder. Because the P/C ratio dropped to .66 and the 
TRIN closed at .64 on Wednesday, I did expect a pause for Thursday, but I was totally blindsided on Friday as I fully expected they were going to run 
SPX to 1900. The measured move on the break out of the symmetrical triangle pattern would take SPX to about 1910 and that still could happen but right now we're back inside that pattern which suggest this was a false break out. Confirmation of this false break out theory would come with a break of the lower triangle line now at about 1845. (Edit: After taking a closer look at the SPX symmetrical triangle, I see that the bottom of the triangle pattern is closer to 1850 than to 1845, so this 1850 area becomes much more important as a support level.) But we're not there yet.
In the meantime,SPX has moved back inside the upper consolidation range. The bottom of this particular consolidation is 1850. I don't know that SPX will hit that as Friday's big sell off might just be a one-day event, but if Friday's sell off proves to be more than a one day event, then you just have to expect 1850 will be tested and perhaps fail. Since so many of these consolidation periods have led to pull backs, then, until SPX breaks back above 1884 with gusto, you just have to on the look out for a break of 1850 in the first few days of the upcoming week.
WithSPX up less than 20pts for the year and with QQQ's, IWM, IBB, and COMPQ in negative territory for the year, it should be obvious to everyone that there is something wrong with the markets. Are we witnessing a major distribution phase similar to those of 1999-2000 & November 2007, or are we just going to consolidate between the low 1700's and the high 1800's in preparation for the next move higher? I don't have an answer but surely the market will show its hand before too much longer, or famous last words. For now, and until we do get a clear directional signal, caution is the word of the day.
IMHO and subject to change without notice.
GL in the week ahead.
TRIN closed at .64 on Wednesday, I did expect a pause for Thursday, but I was totally blindsided on Friday as I fully expected they were going to run SPX to 1900. The measured move on the break out of the symmetrical triangle pattern would take SPX to about 1910 and that still could happen but right now we're back inside that pattern which suggest this was a false break out. Confirmation of this false break out theory would come with a break of the lower triangle line now at about 1845. (Edit: After taking a closer look at the SPX symmetrical triangle, I see that the bottom of the triangle pattern is closer to 1850 than to 1845, so this 1850 area becomes much more important as a support level.) But we're not there yet.In the meantime,
SPX has moved back inside the upper consolidation range. The bottom of this particular consolidation is 1850. I don't know that SPX will hit that as Friday's big sell off might just be a one-day event, but if Friday's sell off proves to be more than a one day event, then you just have to expect 1850 will be tested and perhaps fail. Since so many of these consolidation periods have led to pull backs, then, until SPX breaks back above 1884 with gusto, you just have to on the look out for a break of 1850 in the first few days of the upcoming week. With
SPX up less than 20pts for the year and with QQQ's, IWM, IBB, and COMPQ in negative territory for the year, it should be obvious to everyone that there is something wrong with the markets. Are we witnessing a major distribution phase similar to those of 1999-2000 & November 2007, or are we just going to consolidate between the low 1700's and the high 1800's in preparation for the next move higher? I don't have an answer but surely the market will show its hand before too much longer, or famous last words. For now, and until we do get a clear directional signal, caution is the word of the day.IMHO and subject to change without notice.
GL in the week ahead.
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