Great Trades

With all the bullish technicals, we're not likely to see as big a down day any time soon, but this indicator does point to a likely pullback very soon. If we get a short pullback like the last 6 times during this rally, the second day of the pullback could be a great buying opportunity yet again.

The healthiest thing for the market would be a short consolidation/pullback over the next couple of days that holds the 927-930 "Confluence" area. The next level of resistance is the June intraday high of 956. Above there, there's not much nearby resistance, so the market can move swiftly higher, especially after a bullish consolidation.


After two days of bullish consolidation, where the intraday dips of close to 1% were bought up but the SPX continued to close under 956 resistance, and where the small NYMO change yesterday indicated a big move day was coming, the SPX "moved swiftly higher" today on a clear breakout through the 956 area to close 20 points higher over 976. From the early breakout, indicators again pointed to a trend day up:

On a trend day, you'll see few or no significant TICK readings in the opposite direction (more than 800 negative, or positive on a down day, on the $TICK chart), greater than 9-to-1 up volume vs. down volume (above the blue line on the top green $NYUPV:NYDNV chart, or the second red chart on down days), and a $TRIN reading below 1 and trending lower. On these days, the market will move higher or lower in a trend without significant moves in the opposite direction, and will usually close at or near the highs (or lows) for the day.

You could make significant market profits trading trend days only, if you go with the flow. Remember -- the trend is your friend (until it ends).


As this chart shows, for most of the day, it was a clear trend day up, using the same signals mentioned last week:

There were no significant negative TICK readings through most of the day, up volume vs. down volume reached over 9-to-1, and $TRIN stayed well below 1. The breakout through 956 resistance was very strong, with lots of short covering helping to power the rally.

However, around 2:00 pm, some of the indicators started weakening -- There were more negative TICK readings (though no big ones), up volume vs. down volume was about cut in half from the high to close at 5.16, and near the end of the day, $TRIN rose above 1, indicating that more volume was flowing to the losers. Compare this chart to last week's, where up volume vs. down volume closed at its high and $TRIN closed at its low.

After a nearly straight up rally over the last couple of weeks, including a couple of days of minimal consolidation, these signs of distribution pointed to a likely impending pullback. MicroSoft, Amazon, and American Express all disappointing on earnings have moved the futures lower after hours, indicating the pullback these signals pointed to has already started.

This updated chart of the TICK 10-day EMA shows that, with today's breakout rally, it has moved well above 700, much higher than any reading in the last couple of years. If we get a short pullback like the last 6 times it peaked over 600, the second day could again be a great buying opportunity:


If the next pullback holds the 950 area, or even the 927-930 area, it would be bullish for a continued rally to higher levels. Given today's Dow Transports confirmation of the Dow Theory Bull Signal added to the bullish signals we mentioned last time, we'll see next week if indeed such a pullback proves to be a great buying opportunity.