Sunday, January 26, 2014

Jan 26. SPX: Short Term Uptrend Is Intact Despite Hard Selloff.

On Jan 01st analyzing the long horizon SPX chart I wrote that if we were supposed to experience a meaningful retracement (~100 points), it would likely start from the 1850-1900 area. That conclusion was based on the price pattern during the ongoing bull market and the assumption that this price behavior would continue.
Since then the SPX has traded sideways in a sloppy pattern with upside and downside head fakes building a base before the next directional move. A breakout could occur to both the upside and downside. On one hand the uptrend remained intact on all time-frames and the unfolding consolidation could be considered as a temporary pause before higher prices. The horizontal count target from the June low and vertical count target from the August low were reached and the SPX was on the way to the vertical count target of 1888 from the October low. Upside volume was bigger than downside volume indicating that the buying pressure is higher than selling pressure. On the other hand, the 20+ Year Treasury Bond ETF (TLT) started trending up on the short time-frame. TLT was inversely correlated with the SPX over the last years and the uptrending TLT could be a warning for the SPX lower prices. Also four market sectors were in sell mode in my sector BPI model despite the SPX strong uptrend. The market sent contradicting signals there. Finally, on Jan 24th the SPX broke down out of the range hard and on high volume. Whether it is the start of the expected correction remains to be seen. The horizontal count from the January top projects the 1752 target on the short horizon 8x2 P&F chart. Note, however, that the index is still within the limits of the rising trend channel and the lower boundary of the channel coincides with the horizontal support at 1768. Watch if the 1750-1770 area provides support and keep the uptrend intact.
Disclosure: On Jan 23rd I opened the SPY Feb Reverse Iron Condor Spread 177-181-185-189 (neutral on direction, bullish on volatility). On Friday I bought back the far OTM calls on the market close.


  1. Igor, nice to see your comments again. What do you think o the price action since your update? Uptrend still intact technicaly?

    1. Technically, yes. Should the SPX fall to 1760 I would consider the short-term uptrend broken. It looks like the SPX is going to consolidate in the 1770-1810 area. A breakout from this consolidation determines the short-term trend in the near future. The breadth is deteriorating fast though and that doesn't bode well for the index increasing chances for a breakdown.