07.11.2011 -- Clearer picture

(8:46 p.m. add) - One thing to add here, we are oversold on the hourly. We could certainly bounce up on the way to testing the 1310-1315 range. But oversold becoming more oversold and overbought becoming more overbought has been the standard lately, so I wouldn't necessarily expect a bounce, just note that we are oversold on the hourly, so a short bounce tomorrow or Wednesday is possible.

--------------------------

(original post)

The cloudy window is starting to clear up a bit. We now have some targets to really pay attention to that will signal what this market intends to do.

Lets start right out with the SPX Daily chart;

Big red candle today, you can see that it engulfed 3 days of last week. One of those days being a big green day.

For the bulls, you can see we closed right inbetween the mid-bollinger bands and the 50/100 dma's which are right on top of each other. So bears still have the mid-bollingers, the 50/100dma's, the bottom of the bollingers, and the 200dma to contend with in order to put in a lower low here. That's a lot to contend with.

Those numbers look like 1319 (mid-bollinger), 1315ish (50/100 dma's), 1301 (bottom of bollingers), 1273 (and rising.. is the 200dma)

ALL of those will need to be taken out in order to put in a definitive trend change with a lower high and lower low.

The MACD, RSI, and Stochs are rolled and are indicating a sell signal. So we will do some testing to the downside here. But it could stop and reverse hard at any of those spots.

Here's the SPX hourly chart;

It looks like we will at a minimum test 1310, that could be an intra-day test in which we bounce and close back over the 50/100dma at 1315. That would be a bullish day IMO. For the bears, if we take out the 50/100 intra-day.. we also want to take out 1310 on the close... Bears do not want see a break of the 50/100 and then bounce off 1310 and close back above the 50/100. Just something to watch because I think at a minimum we are going to see one of those things happen.

If we do break back down into that channel, 1299 would be the only road bump to testing the bottom down in the 1270's, which would also test the 200dma.

So again, another key level is that 1310 area, a loss of that would lead to 30-40 points further down.

Some of the other indicies are not as clear, the Russel 2000 isn't clear yet, the transports put in a new high but are in a DOW theory non-confirmation with the Industrials, NASDAQ is also unclear. Hopefully those will clear up for us soon and add to the picture.

One other area thats clear is the financials. The XLF looks like shit again. I think in addition to being under-reserved to pump earnings, I think our big banks have a lot more exposure to European debt that we think.

Speaking of Europe. The US is lucky Europe is such a mess. As long as they have insolvent countries just waiting to explode, we look like a safe haven, so treasuries rates will stay low. One day though, the PIIGS bond holders will take haircuts, austerity will be applied and fiscal sanity will return. When that happens, the US and UK better look out, because then they will become the targets of the derivitive monsters as we begin to smell like the rotting fish in the barrel. We can only hope that our moron leaders manage to somehow actually fix something before this transition happens. Which we all know won't happen, so all you can do is prepare and wait.

GL

CJ