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S&P Watch: An Inflection-Point Setup?


Four reasons why this may be the place we turn down.

Checking an hourly S&P chart with a 5-day look back shows that the index has snapped back towards its overhead 50-period moving average.

Click to enlarge

At the same time, an hourly rising 3-point trendline can be drawn, which comes in at the morning low. This implies that a break of that low could see accelerated momentum, as opposed to just an undercut (whereas an undercut has been the scenario during this 8-week stampede).

Looks to me like a good setup for a inflection point:

1. The S&P is verging on kissing its 200 dma for the first time in a year. While that m.a. may be captured, history shows that the first approach after a substantial period below the 200 is almost always a good place to become risk adverse -- if not positioned for an outright short.

The fly in the ointment is that after violent waterfall declines dead cat bounces can look like cheetahs pouncing off the scorched landscape of discounting a depression. We'll see what kind of animal we're dealing with when it lands.

Notable is how the strongest sector, the NDX, with cash-rich tech companies, converted its 200 dma (as did many of the tech glamors) and never made a new low in March below the November low.

2. The 1-year cycle from last May gave a reversal from the 200 dma.

3. The rally has matched the longest rally to date since the top - 9 weeks. (see weekly chart here, from my morning report).

Click to enlarge

4. The midpoint of the crash which began after the July 2008 monthly tail was snapped; it's approximately 930-940.

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No positions in stocks mentioned.

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