You could have sold tickets to this fight. The bulls and bears were battling it out to start the morning, fading back and forth between red and green, before the bulls ultimately prevailed pushing the indexes up more than 1%. For the second time in a row, the market was able to bounce following a poor session the previous day. Last Thursday we saw the S&P500 hit 1,329 before closing at 1,314 only to finish the next day at 1,325. Yesterday SPX gapped higher and tested 1,334 before finishing around 1,309, but followed that up by closing at 1,324. This resiliency from the market cannot go unnoticed.
Anytime the market can show the ability to bounce emphatically after a sell off that’s a good sign. It’s even better sign when the bounce comes after the market has been going sideways over the last week or so. This resilience cannot be compared to the 400 point up days we saw at times last August because those were simply knee jerk moves. Said another way, the market was going straight down at that time, so it was only natural to have violent moves back up as nothing falls straight down forever. This move lower has been different though, it has been more methodical.
Prior to this recent 10% pullback the last time SPX fell 10% was last summer, when it did so in an 8 day stretch from late July to the first week of August on the way to a broader 20% pullback that ended in October. This most recent 10% pullback though has taken 23 trading days. For comparison, that’s a 1.25% rate of decline per day versus a 0.43% rate of decline per day. So the hard bounces we are starting to see cannot be shrugged off as a by product of the overall decline because in reality the rate of decline hasn’t been nearly as severe as it was during the summer of 2011.
Heading into tomorrow all eyes will be on the 1,334-1,335 range as that area has capped the last 2 rally attempts. We’ll be watching to see if the 3rd time is a charm, but next resistance wouldn’t be too far away. 1,340, a key level of support throughout much of this year, as a level that will likely invite some shorts as bears attempt to turn it into a level of resistance. Above that 1,357 would be the next level to look for a rally towards.
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