Yesterday, the Proprietary Momentum Change indicators for the SPY, the Q's and the Transports generated a new Buy Signal, while the IWM, the DIA and the XLF did not. Yesterday, the The Dow set a new recovery high, while none of the other major indexes did. It would seem that all of Wall Street is watching the 1340 level for indications of what to expect next. A nearly perfectly formed inverted head and shoulders pattern exists in the SPY with a neck line at 1340, with long term resistance at 1340 and the down trend resistance line from the 10/2007 top are all converging on 1340. There are so many lines at that point on chart, it looks like a big blob of ink.
The VIX has broken down through a support line that has been respected since the Summer of 2007, the Bullish sentiment as reported at SentimentTraders, is at record Bullish levels, Margin debt is at record levels, the Euro has broken resistance at 1.45 on a closing basis, the Dollar is making new post 2008 lows, trading under 74, and everyone in the world seems to be buying Silver, or at least is trying to buy Silver.
Yet Greece is expected to enter Liability Management Exercise (better known as debt restructuring) this week end, Ireland continues to move toward rejecting the previously accepted bailout, Portugal admits they need a bail out, Finland elected a new government totally opposed to further ECB bailouts, Germany is voting in regional elections to withdraw financial support for the ECB bailout programs, Japan has still not contained the damage at their broken Nuke plants and competent observers have predicted that vast areas of Northern Japan will likely be declared un-inhabitable. 1st quarter GDP is being revised down to a 1.50 to 2.26% from previous estimates of 4.25%, and 2nd quarter GDP estimates are also being revised downward to 2%. New home sales are still at historic lows, the biggest Bond Fund in the world has sold their entire portfolio of U.S. Treasuries and have added a $7 Billion short position in those securities, revolutionary fires are burning all around North Africa and the Middle East and the industry that moves all coal, grain, iron ore, and other bulk commodities around the world is nearly bankrupt, while the Dry Bulk carriers are falling every where with the BDI unable to find a bottom. And S&P has warned that the U.S. credit rating has a negative outlook which may require a reduction in credit rating.
Oh, and the drum beats for the next series of Quantitative Easing are being sounded around the usual channels, of course because the U.S. economy is too weak to survive with out the support of the Fed.
But in spite of all the above and much more too much to cite, the focus of the Wall Street Sales Industry is on the next leg up of the Bull Market, already projecting the next level of resistance for the SPX to be 1425.
Well they may be right. Or they may be wrong. But we may as well dance to the music being played, following the direction of the market as the signals show us it be. Which is to find a place to get long, either prior to or just after a break at 1340. If it does not work out, we will know why God invented stop loss orders. Or was it Jack Kennedy..... .I don't remember.
Dow as this is written is up 33 points, or 0.23%, the SPX up 6.25 point or 0.45% and the Transports are up 52 points, or 0.98%. The transports have led this rally and it looks like they are trying to confirm the new Dow high so the Dow theory stays Bullish. I am still uncertain.. and want to see what happens at 1340.....there will be plenty of time to buy if that is the resolution, or it will be time to trade the short side of the market.
Best to Your Trading!
Bill
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