In “Rally Myth Busters” I outlined underlying weakness and concerns about the macro set-up that is unfolding. Yesterday we broke a 10 day range pattern to the downside. It could simply be that we are making a low the week prior to OPEX and rally back to new highs next week, as has been the pattern, or something larger may be at work. Like a message in a bottle the $SPX may be sending signals. The $VIX crossing its 200MA may have already signaled us all we need to know, but for now it all remains open to debate as key moving average have not yet been broken.
Today we are below the 5EMA and 8MA, but also touching the 21MA with the 50MA just below near key gap fill, a logical place for a bounce.
Yet not the larger megaphone pattern I have been pointing to has gained in relevance throughout he rejection at its top boundary last week and that pattern could signal a very volatile next few weeks into the end of QE in October:
For now we can observe that the MACD has crossed and the high lows have been negatively diverging during these past new highs. Not positive developments. That’s what the message in the bottle is telling us. We’ve been listening to these messages and hence have been selling strength the past 10 days despite all the bullish prognostications and target raising and traded long only opportunistically, but focused on short set-ups. So far so good.
But OPEX is just around the corner and Janet is showering the market with a large POMO operation tomorrow and we remain flexible in approach 😉