The chart to the left tells the story today as the market got rejected from making any attempt at surpassing the key moving averages on the 60min chart. After 2 sharp up days after a key reversal in a bear market you should expect the market to retrace as the always informative Oscar explains here. The day started with bad retail sales and it continued when Big Ben came on tv to talk down the economy, again. Its really amazing that these guys think they need to keep coming out during market hours and speaking about how bad things are. We get it! Anyway the selling accelerated into the close as the SPX ended the day down around the 905 handle.
This selloff was more than I would have liked to see (I was calling for a retrace back to the 920-940 level). As ugly as today was you gotta remember that we are still well above the lows of last Friday and as long as we hold that 850 level in the SPX then we can hold our breaths. The volume today was not too impressive for a point loss this large. NYSE volume posted a pretty average 6.5 billion shares (compared to the 11+ billion we witnessed in Fridays whipsaw).
I posted this chart trying to illustrate the 2 choices that I believe the market has at this point. I realize there is alot going on in this chart but bare with me, its crucial. First off the chart goes back to last week and you can see the downdraft we had followed by the 1000 pt rally Monday. I put on a nice Fibonacci Retracement and you can see that we have retraced a bit more than the preferred 62% I would have liked to see. Nevertheless the arrows pointing to Fridays support levels represent areas WE MUST HOLD. It appears the market wants to retest the lows of around 850 much faster than I would have liked. Obviously, if we break beneath last weeks lows, you do not wanna be long, lol.
On the other hand, the only positive I see is that there exists a potential for an inverted head and shoulders as evidenced by the circles I have drawn in. The thick white line above is the neckline of the pattern, or the resistance that will need to be broken in order for this market to rally higher. The levels to watch on the upside are 1020-1040. Of course this inverted head and shoulders has not even formed yet and would still have to complete the right shoulder to even be considered as a trade idea. However I noticed it as I analyzed my charts and I wanted to bring it to your attention so its on your radar.
I would say that after today I'm neutral on the markets until this range is broken out of; probably a 60/40 bullish bias if I had a gun to my head. Trade safe!