As expected, the action today was strong after last week's narrow trading range. Last night, S&P futures came within 0.25 points of last week's low (corresponds with 869 SPX), but buyers came in and defended that level. Later, in regular trading, buyers rushed in when 888 resistance was taken out, pushing the SPX over 901 at the close, with futures over 30 points higher than last night.
Looking ahead, there's some SPX resistance nearby, but the big "Confluence of resistance" remains in the 927-930 area. If the market can break through that area, there could be a sizable squeeze rally from there -- there may be lots of new shorts based on the media reports on the Head & Shoulders pattern. If the pullback after this bounce holds the 879 area on a closing basis, that could confirm a bottom to this selloff, but if that area gives way, we should see some significant selling to potentially much lower levels.
The nature of the follow-through to today's rally will help determine the next big market move.
Our futures trading system had another great day, getting very long stock index futures for the breakout rally, and also getting nice profits on the gold rally. It continues to do well in both up and down markets, and live testing has allowed us to tweak the various programs as needed.
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