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Wednesday, 2 May 2012

Bulls Need to Perform Here

We got the move up I was suggesting was likely, but it peaked short of where I expected and the pullback has been deeper than I expected. Overnight the pullback has continued, NQ is testing yesterday's low at the moment, and and (RUT) is well below yesterday's low. There is negative RSI divergence on the RUT 60min and SPX 60min charts and bulls need to hold firm today or we may see 1394 SPX support tested again shortly. If we do see that then the possibility that an H&S top may be forming on SPX will need to be considered.

For today on the SPX 15min chart, rising channel support is in the 1401.50 area and I would like to see that hold. If it doesn't then I have some support in the 1397 area and main support in the 1393/4 area:
Main support should in the 1392-4 area should ideally hold on SPX as a break below throws the current bullish pattern target in the 1425-30 area into doubt. If it should be broken today then next support is at the middle bollinger band and the 50DMA in the 1395 area, and a break much below would kill off the W pattern on SPX in my view. SPX touched the upper bollinger band yesterday at 1415 and reversed there:
There is also an ominous potential H&S pattern forming on RUT that I've been posting every few days and I gave the ideal right shoulder high last week near 833 resistance. Yesterday's high was at 830 and the negative 60min divergence looks ominous. RUT also has a double or W bottom in place and yesterday's close was a second retest of the neckline there. A break below with any confidence kills this bull pattern:
Dow made a new 2012 high and once again TRAN did not. TRAN started to underperform Dow markedly in February and has not been confirming the new highs on Dow since. This is a Dow Theory confirmation that will persist until TRAN makes a new high for 2011. This is often a slow indicator for market tops but it's worth looking back on this chart to see the non-confirmation at the 2011 high:
I've been talking about the seasonally weak May through October period and thought I'd illustrate that today with a four year SPX chart. As you can see on the chart, there is a strong pattern of seeing at least some weakness over this period, though much or all of that weakness is often cancelled out by the end of the period, and in 2009 large gains were made. When the summer low is made it's best to go long with confidence, and there is generally some kind of summer low after a significant retracement:
I think we are within a few weeks of making a significant interim top that should then be followed by a deeper pullback than anything we have seen since October. I don't think that top is in yet but, if we see SPX break 1392-4, and then 1385 with any confidence, I might need to reconsider. Until we see that my lean is bullish and the pattern setup on SPX, RUT and NQ is arguing for new 2012 high as at the close yesterday. Dow has already made a new high for 2012 yesterday of course.

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