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Wednesday, July 7, 2010

Overdue Bounce

We were long overdue for a bounce, and it came today. We broke through 1040 fairly handily, and appear to be heading for the 200dma, which, but the time we reach it, will probably be over the 50dma. The confluence of the two will be very tough resistance, adn getting through that will go a long way toward getting some confidence back. Notice the divergence in MACD, which is now in the process of flipping. This could be (emphasis on could be) grinding out a bottom here.

The Nasdaq had a big gap from where it broke the 200dma. That gap will probably be filled here, which would bring us right up to the 200dma, where the test will come.  We are now on fllow through day watch, but I'm not sure exactly when the rally attempt will be considered started, so I will check with IBD when I get then chance.

The move in treasury yields was a little less enthusiastic, but by TNX standards still pretty big. This was badly oversold and well under the newly established trend line, and a bounce here should not be much of a surprise.

Crude oil is range bound and the moving averages are all about in the same place, so I suspect this will whipsaw between 72 and 80 for the near future. Getting above 80 seems to be a catalyst that draws equities back in, resulting in a subsequent drop here which draws equities back up, a vicious cycle which can continue for quite a while.

The US dollar index is in an orderly pullback which has pierced the 50dma. It is now just about midway between pivot points, and is probably headed ultimately for a test of the rising 200dma.

Volume was fairly low, and there wasn't a whole lot of new highs. It is way premature to call the correction over, but it is also premature to start jumping into short positions. In the next few days we will probably get an idea as we test moving averages.

I will have the new highs update slightly early tonight.

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