Feb 15 - 19 Summary & Feb 22 - 26 Outlook

There were two key points that I have made in previous posts that I have put heavy emphasis on:

1.  Do not expect a crash this soon.  The market has risen above major resistance areas since the crash in 2008.

2.  Beware of headfakes with the 20/50 EMA.

3.  And more recently on 2/7, I suggested that the market will rise on low volume and the 20/50 EMA offered a good chance to release longs and initiate shorts or stay cash.

Indeed, the market rallied this week and the pull back since 1/20 stopped exactly at the 200 EMA mark.  Early next week will be absolutely pivotal in determining how the entire month of March may play out because it appears this move may be a headfake to trap the bears who shorted on 2/16 and 2/17 at the 20, 50 day EMA. 

Could this whole move during the past month be a headfake before SPX retests the 1,150 or goes even higher?  First, the market indices have been above the 50 EMA for 3 days straight.  Second, the EUR is getting oversold and fast approaching crucial support.  A massive reversal in the EUR/USD pair will move US equities higher.  The black candlestick on UUP looks very promising that equities could break out even higher on Monday as the UUP takes a break and retraces for a couple days.  UUP also hit the 38.2% fib retracement from the 3/9/09 high to the 12/1/09 low.  But make no mistake about it - the dollar is nevertheless in an uptrend and bullish, and will be a burden on equities.

There are still many technical signs suggesting a continued downtrend based on the $SPX.

1.  The 20 EMA is still below the 50, and this is a very easy way to flush out novice shorts or those without patience.  The trend is still down. Remember Jul '09 when the masses wear bearish and though the head and shoulders would play out, only to be rejected by a massive move up.  Guess what?  The indices were all still in an uptrend.  The exact same could happen now, except for the bearish/downtrend case.

2.  CCI and DPO have not confirmed the up move.  Both are still below the 0 line.

3.  I drew three separate channels based on movements going as far back as Aug 2009 and Friday's close is close to the border on all three channels attempting to break to the upside.  The more touches at the channel lines, the stronger the channel.  In that respect, the black channel is the strongest followed by the blue.

•  Black channel dating back to Aug '09 - attempting to break back into this channel.
•  Blue channel dating back to Oct ' 09 - right at the 50% mark.
•  Red channel - most recent channel that the most subjective of the 3, and it looks like Friday's close could be the top of the channel.

4.  Closed right under 61.8%  Fibonacci retracement from the 1,150 high to the 1,040 at 1,109.

5.  Closed 1 point above the 50 SMA (even though i don't look too much into the SMAs they are occasionally valid).

There you have it - more technical reasons for the downtrend to continue as opposed to a possible headfake and new highs in the market.  If the market breaks out Monday, become a bull again and expect at least a double top to 1,150.  If the market stays flat and trades between 1,109 and 1,115, then hold onto shorts until the signal is clear.  Trading is a business of probability and statistics - and right now the probability favors a continuation of a bearish move.