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Tuesday, June 21, 2011

The VIX does it again!

Mr Market appears to be paying attention to the VIX... the rule that a close outside the BB band, followed by a close back inside the BB band, followed by a second day in the same direction generates a trading signal.  In this case, the signal was unmistakable. Everybody saw it and now here we are at 11:45, Up 115 Dow points and 17.60 SPX points.  Right around 1% on both.

There were a couple of new Momentum Change signals yesterday with the DIA and the XLF  and the IYT generating new Buy signals.  Today, the SPY, IWM, QQQ, and the FXE have also generated new Buy signals. In addition, the GDX and the SLV are also nearing new buy signals. The UUP is nearing a new Sell signal.  It is difficult to determine where this bounce may take us... there are some TA's talking about resistance appearing around 1303.  I personally think this rally may may have some legs.....perhaps taking the SPX all the way back up to around 1340 level, which would make a nearly perfect H&S pattern that seems to be forming in most of the major indexes. Time will tell. However, my first goal would be around the 1318 level.  It would make a perfect place to take some profits out of the rally and begin to set up defensive strategy for the 1334 level.

News today is focused on the elections in Greece, where the hope is that the voters will approve the proposed bailout and accept their imposed restrictions.  But the larger issue in the EU is that the voters in the remaining EU members are becoming more and more hostile to the idea that it is their job to bail out the loans made by private and state banks to Sovereign nations.  The ECB may be able to kick the debt issue down the road for another few months, but the tax payers and voters in nations like Germany may have other thoughts about taking on the burdens of the bad loans made by the bankers.

ON the domestic front, the annual sale of existing homes printed at 4.81 Million, vs expectation of 4.8.  This is the good news the market is reacting to today.  The fact that this number is 3.9% lower than the previous month is also seen as good news, as expectation had been for a decline of 5%.  I guess we need to take our daily dose of Hopium with a grain of salt.

Best To Your Trading!.

Bill

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