If we take the 2,130 on 5-21 and use that as a high (I like to use closing print data) and subtract from that 1,867 which is the closing low on 8-25- we come up with 263 points- now using some simple math and dividing by the 2130 price we get the percentage decline in the market of 12.35%. Using Friday’s closing price of 1951- and dividing by the high (2130) leaves us with a market THAT IS STILL DOWN by 8.5%- Does Friday’s action qualify as a reversal- NO, Does that change the short term trend – NO. The S an P is still off by 8.4%! and is back to a level where it was almost 47 weeks ago. There isn’t a fund manager in the world, that wouldn’t give his left nut for a consistent 8.4% return year over year, and that is how far we fell in just over a month. I would hardly call my friends the Bulls elated about this up move in a down world (counter trend). I get no joy from an up market or a down market. I think of risk on and risk off. It is NOT uncommon to see increased volatility and strong up moves in a down trend- conversely it is also NOT uncommon to see large down days in up trends. I personally think this market has some pretty strong head winds to the up side and down side support has yet to be tested (and may never be!!)
Technical analysis works best in a market that is truly “free”- as price action is based on human nature, and TA is a study of price action- the X- factor in THIS market is the FED and their willingness to throw caution to the wind and increase their balance sheet- 4.5 Trillion and counting…. where do they stop? If someone knew it would be like shooting fish in a barrel. We’ll only know how far the central banksters are willing to stretch their balance sheet and prolong the overvaluation (and bubble blowing- unless the strength of the economy can catch up to it) in retrospect. Their input (or manipulation) or lack thereof will result in one of two things- the bull will rage and in the rear view mirror this will be deemed a minor correction or a continued downtrend (the perma bulls will call this a buying opportunity, or profit taking, or loss taking for tax purposes, a much needed correction or resetting of valuation- after all, since 1929 the trend is definitely up!) . For now- I’ll side with Sam and look for downside opportunities while I wait and see.