The post FOMC burst to new highs has evaporated and the indexes find themselves pretty much unchanged from where they were at this time last week. There’s a lot of debate over whether or not we just put in a blow off top, or if this 1.5% drop off of the recent high is your buying opportunity. I’m going to tell you a secret that I promise will help you navigate this recently turned bi-polar market: 1,700. That’s right, just focus on 1,700. Holding above 1,700 is bullish, holding below 1,700 is bearish and sets up support tests.
Below 1,700 and there is gap support at 1,691-1,687. Below 1,687 and key support is 1,674-1,670. While holding above 1,700 resistance comes in at Friday’s close around 1,710 (coincidentally also in line with the first all time high above 1,700 from August 2nd) and 1,720 (a level that once broken on Friday paved the way for more sell pressure. Above 1,720 and the current all time high at 1,729 is in the way of a move towards 1,750. The reason I emphasize simplicity in regards to 1,700 even more so right now is because of what is going on in the banks (XLF).
XLF has now failed to “confirm” the highs in the market 2 times, first in August and now most recently last week. That is, XLF hasn’t moved to new year-to-date highs even though the market has. I was someone who just 4 weeks ago was citing this type of lack of confirmation by XLF as a reason to be bearish. However, that just proved to be untrue. If XLF needed to confirm the market then theoretically the market shouldn’t have been able to make new all time highs last week without XLF moving to a new year-to-date high, but it did, so therefore XLF’s price action becomes less important to me. That’s not to say XLF shouldn’t be watched, but it shouldn’t be denoted as the leader that it was earlier in the year.
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