January 28 Market Wrap — Another day, another reversal

Thursday's Market Stats
1234market stats

Following Wednesday's strong selling right into the close there were signs of capitulation (high TRIN, VIX spike, but divergent new lows vs. new highs), which has often led to a strong reversal the next day. On top of that we had a post-FOMC selloff and that move is typically reversed the next day. But just to suck in a few more bears to create a better bear trap we saw some additional selling this morning and SPX was down about -13 by 10:45 AM before the buying started. Other than minor dips it was a strong reversal and SPX rallied 35 points to almost 2025 before pulling back a little into the close and finished +19. Just another day in the choppy whippy price range the indexes have been stuck inside for the entire month of January.

As can be seen on the SPX daily chart below, this morning's low was a slight poke below the bottom of its sideways triangle, which from a bullish perspective was a throw-under finish and the rally back inside the triangle (getting back above 1995) created a buy signal. The bullish pattern calls for a rally out of this, one which could see SPX up near 2125 by mid-February. But in reality the only thing we have after today is a continuation of the trading range that we've been in since the end of November. The bulls need a rally above the January 22nd high near 2065 before we'll know if the bullish setup here will actually follow through. I circled the two previous times we saw similar bullish reversals in the triangle pattern, both of which saw some short-term follow through but not to a new high. The triangle can now be considered complete, which is why this time I'm saying a bullish breakout could be next. But if today's low at 1989 is taken out then I think the bulls will have lost their chance for a new high.

SPX daily chart

NDX bounced off its uptrend line from March 2009 - June 2013 and made it up to resistance at its broken 20-dma at 4187. It has the same bullish setup as SPX but it's obvious it has only managed for weeks to bounce around inside a narrowing price range and between various S/R levels. Other than getting long at this morning's low, buying support, there's not much to be done inside the choppy price range. Until it can get above 4300 or below 4100 (below today's low) we have to be careful about continuing whipsaw moves.

NDX daily chart

The metals got hurt today but it wasn't because the dollar did anything (it actually dropped also). Commodities in general sold off some more and it's very likely due to continued concerns about a global slowdown and slackening demand. Why the stock market would rally to a new high in spite of all the warning signs is beyond me and I have a hard time believing it will happen. But I learned long ago to go with the charts since the emotions of the market participants don't follow logic. Friday morning we'll get some more economic data, including the advanced reading of GDP for Q4 and Chicago PMI, and if they further signs of economic weakening it could reverse today's reversal. I'm looking forward to a trend we can trade but in the meantime it's a day-trading environment.

Friday's pivot table:
1234pivot table