Time to Show Their Cards (by Closing Basis)

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Greetings Slopers,

Just a quick post today with a simple weekly SPX chart.  It's hard to say what will happen this week, but it should provide some much needed answers.  Take a look at the chart…

SPX 2yr weekly

In the bears corner, the black channel IS established with two points on the upper side and two points on the lower side and sets the upside limits for any rally in my opinion.  The lower end is around 1050 currently.  If the bears have a good hand this week, it will become a target, but it should take a couple of weeks AT LEAST I would think barring a default of some significance.  If the steep trend remains, risk of a reversal would be high with such oversold conditions even a short sideways consolidation would help ease the risk a bit.  Monday should provide some clues.

As it stands for the bull case, the main shot in the arm to the bear case is the very low volume last week.  It looks like it dropped approximately the same amount on about 3/4 of the volume.  Additionally, we've dropped into the 61.8% retracement of the October advance.  There is the lesser volume and an extremely low McClellan Oscillator reading.  Plus there is a bullish falling wedge on the intraday charts from last week.  So it would appear that signals are leaning bullish for the short-term. 

The close on Friday left a lot of bearish looking candles which should create a nervous mood Monday morning.  If we get a lower open/gap down which recovers by the end of the day with a trend line break, I will be very sure that the bounce has begun and looking for 1220 for starters.  The blue channel is not confirmed on its lower extremity yet and may be nothing, a test will resolve that question.  Even if it does touch and hold, I believe the upper black channel line will be the ceiling for any rallies at this point.  BUT my magic eight ball is malfunctioning so I'll have to rely on good ole' fashioned analysis and reevaluate every day of the week.

I'm really hoping for an oversold bounce and an opportunity to go short again with less risk.  I wish you all a restful weekend.  Cheers.