Sunday, August 17, 2014

Test of the Highs Fails

What was expected to be an “anything goes” week turned out to be just that.  After rallying close to a strong resistance area of 167, unsubstantiated reports that Ukraine held off a Russian invasion slammed the market down hard.  As future reports indicated that if there was any such attack, Ukraine in fact destroyed their own vehicles.  The markets firmed up but could not provide enough power to push it beyond 167 to test the highs of three weeks ago.
Traditionally, a failure of the three week test of the high has been the key intermediate-term sell signal.  One might expect to see the market still try to take out the high and succeed.  Other indicators provide additional information that show that momentum may be slowing and that the market will soon sell off.
Hard to say what will happen as market participants have been well-trained to BTFD, or "buy the Dip!"  And that's exactly what happened.  Some curious notes of interest mentioned how it was puzzling that the market did not react negatively to an apparent recession occurring in Europe (as this was expected anyway), but when a news report mentioned that a Russian convoy was attacked in Ukraine, the market was roiled (as that was unexpected).  But as an earlier post mentioned, this news was out there even before the market opened.  It could be that just simply, the market hit the resistance and sold off, as many wave counters have pointed out.
I also like how it was pointed out that the rebound took shape in a typical Elliott Wave five wave move up.  Perhaps some downward pressure will resume.
One rule of thumb that I developed in Grad School was in an up market, if the market is up on Friday, buy the open on Monday and sell the close.  It generally seems to work.  However, if the market is a down market, this rule does not work.  I will be watching how the market reacts Monday morning.  Perhaps this will give me an indication as to whether we are in an UP MARKET and the market could be expected to go to new highs, or if we need to see another attack at the 190 (SPY) level.

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