Thursday, December 10, 2009
Market Remains Range Bound; Gains From Here Should be Hard Faught, and Short Lived
The market shot higher out of the gate this morning, fell back a little bit, then traded sideways the rest of the day. It rallied shortly after my post yesterday (click here for yesterday's chart) which pointed out the weakening momentum behind the downtrend, and then continued to rally higher this morning. The Dow actually created an inverse head and shoulders pattern on the 5min chart as well. This rally occurred at the bottom portion of the range, telling us the market isn't ready to break out of it in a decisive manner yet. Usually consolidations, or triangles, occur as a pause in the previous trend before spiking one last time in line in the previous trend's direction. In this case, that direction would be up. So it would not be surprising at all if we see some follow-through with this rally in the coming days, and probably get a spike to a new high on the year in the S&P cash index above 1119.
However with so many divergences in other indices and sectors, and the fact that even the euro didn't rally with the stock market today and precious metals continue to weaken, it tells me that any further rallying to new highs will probably be by the S&P, Dow and maybe the Nasdaqs all by themselves. The amount of indices, sectors and markets, charging higher to new highs is getting smaller and smaller. So any spike above 1119 in the S&P should be short lived, and worse case for the bears would be that it does a "blow off top" like gold did. But the reversal from that top will be just as fierce as the climb higher was.
So I remain short term neutral on the stock market and long term bearish. A solid close beneath 1085 will open the door to possibly a major top being in place, while a break above 1119 should be short lived and reversed shortly after.