The indexes are continuing their rallies today and have eclipsed their Friday highs. In addition, today’s moves has put further distance between SPY, QQQ, IWM, DIA and their August 26th low. The 8/26 low is important to me because that was the day before the market gapped down and broke 1,640 support. XLF, however, has failed to move above its 8/26 low of 19.93, hitting that level exactly this morning marking its current high of day.
If you swapped back to bullish on the rally above 1,640 and then the continuation beyond 1,650 then congrats to you. Now though is the time to protect some of those gains until you get further confirmation that a bottom is in place. I describe what I’ve seen so far as ‘spotlight’ signs of a bottom. That is the headlines would lead you to say there’s a bottom in place. SPX has advanced further beyond 1,650 and more importantly the NASDAQ has hit a 13 year. Why isn’t anyone talking about XLF though? If you believe that as the banks go, so too does the market, then you have to exercise some caution here.
Say XLF does fail to break 19.93 today it wouldn’t mean that the bottom at 1,627 is going to for sure get tested, but it would increase the likelihood. In the scenario of a 19.93 failure support will be right around 19.72 (XLF’s 8/20 & 8/21 lows). Holding that level would set up a potential bullish inverse and shoulders bottom and set the stage for that key 19.93 breakout. Of course if you get that breakout today, then I’d look for more momentum to the upside with 1,685-1,710 targeted. Key index support on SPX moves to 1,656 (8/26 low) and 1,648.50 (midpoint from 8/26-8/29).
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