Thursday, August 19, 2010

Parked At the Gate

The following is primarily for those who are very short term oriented.

We are parked at the gate for a decent bullish non confirmation signal - provided the following: Should the S&P 500 break below its intra day and closing lows of August 16 (1069 and 1079, respectively), which given the deterioration in momentum and MACD and the failing rally (see first chart* and prior blog posts) seems likely, the key to watch for is whether that low is matched (i.e., confirmed) by other important indices - such as the EAFE (EFA) and emerging markets (EEM).

As the second chart shows, EFA may break to a new low as its momentum and MACD are showing most of the same signs that the S&P 500 is. However, as the third chart shows, EEM is in better shape but it, too, has deteriorating momentum and MACD readings.

Investment Strategy Implications

It looks like my "failing rally" blog posting warning two days ago has occurred. Now, watch for the downside break with a non confirmation in the above noted and other indices to see if the S&P 500 has company (making new lower lows). If it does, then the second scenario noted last Thursday will apply. If it doesn't, then the first one applies.

The bears prefer the former while the bulls the latter. Stay tuned.

Note: This is primarily all short term stuff. For investors, it is important to note that none of the above resolves the longer term trading range, which will determine the next major trend move for the market.

* click images to enlarge

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