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PUBLIC: Nice bounce off 50-day. Will it last?

The S&P500/SPY bounced from Friday and Monday’s incremental lows with a nice gap up on Tuesday.  Short term traders found themselves getting short too late into the down move and those that hadn’t covered on the open of Friday or Monday found themselves caught in mini-short squeezes both days but a MAJOR short squeeze when trading opening on Tuesday.  One of my day trading mentors predicted this movement if price couldn’t move lower on Friday and Monday and *maintain* that lower movement.  Just as I called the 8/8 top based upon the “look above and fail” terminology of auction theory, the reverse is also true….when price falls below support and bounces back quickly, a “look below and fail” has the potential to push prices up.  Price dropped at the open on Friday and Monday below the prior session’s lows but couldn’t stay down.  Monday’s low is now very important.

From my PROTECTED post late last week, we talked about price getting back above the 50-day AND closing in the 2017 channel as one possibilities moving forward.  Both have happened and clouded the technical picture somewhat.  Any short term pullback should use Monday’s low as support as well as the 50-day moving average with only a minor blip below and immediate push back above acceptable (a stop run, to clear out the weak-handed long traders using Monday’s low as their marker) and targets the recent high of $247.57 from last week.  If the market can move above that $247.57 level, the daily downtrend will be broken as there are no longer lower highs and lower lows occurring.  If price stalls out before $247.57 and rolls over again to take out Monday’s low definitively, the market may be looking for a larger correction!  There are areas of support below Monday’s low, but they seem to be a long way away thanks to the one-directional (UP!) movement of the market since May 2017.

Just a cautionary note…the next move down could be a real decent sized move if price rolls over quickly here.  Putting money to work slowly and incrementally would be the best play, and waiting for the market to reach the $235-236 level may be a good first entry for those that like to dollar cost average their entries rather than invest in one lump sum.  Thanks for reading, and welcome to our newest subscribers!  Hope you enjoy the commentary.