Sunday, January 15, 2012

SPX At Make or Break Point

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There are some significant potential time relationships that are occurring right now in the S&P 500.  Three potential reversal time points all lined up on Thursday.  The primary time being that the rally off the October low is now 0.618 of the time of the May-Oct decline.  The other relations are represented by the green boxes as a possible ABC relationship, and the purple line which is the same time as the August rally off that waterfall decline low projected up from the Dec low.  Given the price at a breakout point here, this may be a set-up for a failed breakout.  Any technical signal can be used here to enter short if a valid sell comes. 

If the trend is to turn down in the markets from this point, the logical price confirmation would be for the coming move to retrace the entire rally since the Dec low in less time that it took to form.  If that happens, I would consider the trend to be/remain down.  If that does not happen, BUT the market does correct more slowly, then we will likely see another sustained move higher to follow that correction.

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The total put/call ratio is relatively low right now, and extremely so, given the range over the last year.  The market shouldn't have but a few days to make a top in a typical downtrending environment.  I will also note that the longer term put/call ratios are in down trend mode.  So while price is neutral, the sentiment is in bear mode.

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There has been a 7-8 week cycle at play over the last year.  This past week would be due for an inflection point. 

Based on the evidence above, my belief is that the market is unlikely to successfully make a breakout of this level right now.  However, if a reversal doesn't shape up in the next few days and the market remain below the Oct high, then the trend indicators will likely be in up mode on the daily time frame.  Those can lead to steady low volatility up trends.