Thursday, October 9, 2014

S&P 500 Index - Bullish Sails Still Torn

Yesterday’s bullish equity advance was very impressive.  The S&P 500 Index advanced 33.34 points from open to close.  This is the greatest advance since January 2nd 2013, though there were an additional 8 advances of similar or greater magnitude since March of 2011.  As impressive as yesterday’s price action was, we may benefit from patiently waiting for a confirmation of its bullish implications. 

Price action in ESZ4 (S&P Emini Future) over the last two days formed a bullish engulfing pattern on Candlestick analysis.  The low print yesterday eclipsed by a quarter point the low from October 2nd, ostensibly giving greater creditability to this level of support.  Again, we are being cautious in interpreting the price action over the last days as convincingly bullish in nature.  It is quite possible that much of yesterday’s gains could give way to further selling today. 

Note the last time ESZ4 formed a bullish engulfing on September 23-24.  Prices fell further making new lows on September 25th.  We would not expect new lows today, though anything is possible.  Rather, we would watch that the ‘mid’ (1944) of yesterday’s advance is defended through Monday’s settlement.

On September 30th and even earlier on September 22nd we advised that equities would find lower levels. The 3% decline and more suggested on Sep 22 has been achieved.  While SPX and ESZ4 may have already experienced the extent of the correction to be seen prior to additional gains, we are apt at this stage, given decidedly conflicting economic signals, to patiently await a bullish reversal confirmation.  Otherwise, the most prominent technical formation still holding sway is the bearish reverse at the record high.  

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