If anyone was happy this week, it was the day traders, who, of course, don't care which way the market is going, as long as it is moving. Move it did, but ended up nearly where is began, with lots of shares trading hands. I have us in a very wide range here, between 1100 and 1250, which will probably narrow quite a bit as volume recedes. I'm still expecting a move up toward 1250, and on lighter volume, before we get another downdraft. We now have the infamous death cross, which in those rare occasions it happened in the last two years, has actually marked bottoms. We also have the infamous Jackson Hole conference later this month, during which, last year, Bernanke pulled a rabbit out of his hat and kicked the can down the road another year. He might try it again.
There wasn't much remarkable about the weekly chart until I put the fibonacci grid up. Critical support is at 1100. The 38.2% retracement level from March 2009 to May 2011 is also 1100. When youn see it once, it's probably coincidence.
When you see it twice, it's a really weird coincidence. Actually,the Nasdaq didn't quite hit it, but came awfully close.
When you see it 3 times, then you know something is up. It is apparent that a lot of traders put in "stink bids" at the 38.2% retracement level (probably on the SPX, maybe on the Dow) and they were triggered when it hit. That started buying (and short covering) as the market moved up. Now they question is, where do they start selling?
It's funny how the transports have been so weak lately, yet we see the same exact pattern here. This one I can't explain.
The Russell 2000 did not quit play along, but a buy at the 38.2% retracement level would still have been profitable here. Will it work again? I doubt it. If we have another down leg, I strongly suspect the 50% level will be the target.
Both the Nasdaq and Russell 2000 got pretty decent bounces this week (even though they did have down weeks, they closed well off the lows) so I still think we will get a tradeable bounce over the next couple of weeks. I'm not dumb enough to guess what Bernanke is going to do later this month, but don;t think he will be sitting by the pool sipping pina coladas. He has something up his sleeve.
I will have the new highs update shortly.
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