Friday, August 28, 2009
Qs Hit Zone Of Resistance
I think the above chart sums it up pretty well. What happens in September will determine the outcome for the rest of the year in many ways. I'm not saying that the market will go up the rest of the year, rather that the character of the ensuing correction will be determined by whether or not the zone of resistance is penetrated.
It might be argued that many investors will want to sell now that the market has recovered back to its pre-crash level (at least for the Qs). However that argument really doesn't stand up to scrutiny. The fact is that most investors did not sell. They have held on with an unyielding belief in the buy and hold philosophy. Now that their belief has been vindicated, there is no reason to sell.
At this point the commercials and the small speculators stand at opposite extremes. The small specs are bearish. The commercials are bullish. The large specs are mixed. Any substantial move above 41.05 will swing the small specs to the bullish camp and lead to an acceleration of the rally. Failure to sustain that level will bring the large specs squarely into the bearish camp and bring on the correction.
If Terry Laundry is correct, the rally in the SP500 should terminate around October 15. We should remember that in 2007, the Qs kept going for another 3 weeks after the SP500 topped. There is no reason to believe that won't happen this time too. So we have the makings for some volatile action, and there is no way to know which outcome will prevail.
That said, what we do know is that the market is in an uptrend. The moving averages are in a very bullish configuration. All attempts to sell this rally have failed big time. You can sell out now if you want, but the weight of the evidence is with the bulls until the red trendline is broken. If the green trendline is taken out first, then the red trendline will not be as important. If it is broken after the green trendline is taken out, then the green trendline will become support on a pullback.
For now I am content to remain long this market. Perhaps that will change next week. We must adapt to new information. One thing to keep in mind is that with the late labor day weekend, many professionals may not return until September 8, which could prolong the low volume chop. If there is not much action on September 1, then we will know that is the case, but I am expecting that Sept 1 and Sept 8 will live up to their typically bullish seasonal patterns, i.e. Sept 1 is usually a strong up day, and Sept 8 is the Tuesday after a 3 day weekend, which is usually a strong up day. We will re-evaluate as the week progresses.
Posted by R. Craig Pritchard at 6:15 PM