Sunday, February 21, 2016

Feb 21 - Consolidation, reversal, or breakout this week?

The last 2 days were very constructive for the bulls and still seems bearish sentiment is too elevated for the market is have a retest of lows in short term future.

As of now, I am guessing that this week

40% - move through resistance SPY at 194 to test 200 in 2-3 wks where the real tests begin.  This is the 'pain trade' scenario where bears get emboldened and squeezed and bulls selling at what is 'obvious' resistance frustratedly watch the market go higher without them.
25% - an early week test of 194 SPY but then a pullback on lower volume to 188-190 then moving up following week or later this week
20% - consolidation btw 188-192 SPY then a move up later in early March
15% - a test/ non-test of 194 SPY then a deeper pullback to mid to lower 180's

So basically lots of scenarios and the 194 level will be something I will be watching for reactions.  In any event I have 65% chance of the market breaking 194 resistance in the next 1-2 weeks.  This is of course based on the info I have now and we could see a change in sentiment depending on the reaction at this level if and when we get there.

In the bulls favor is excess pessimism by investment in bearish ETF's and a lack of fear in VIX/ VXO.  In the bears favor is that on the daily chart stochs/ CCI are close to signaling a sell signal but these have often failed in trending markets whether a bullish or bearish move off of major reversals.  This time may be no different.

If we hit 194 early this week, the question will be whether we close above it which would be very bullish and invite late to the party bulls.
 This pullback has come on weak volume and weak selling power

 Bearish funds have sometimes peaked in interest after respective lows by late to the party bears.  Bulls would like to see a reversal here soon to feel more comfortable.
 HYG despite a down day for the markets was positive which is a plus.  We are close to breaking a long time trendline.  If this happens equities could start moving up with more confidence.
 NYSE has seen major buying power courtesy of Rob Hanna.  The edge is evident in short and intermediate term.

 VXO still has room to move down indicating lack of fear

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