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Weekend Update, June 22, 2012 - 1st Test For The Bears

|Includes: DIA, QQQ, SPDR S&P 500 Trust ETF (SPY), TLT

Bottom Line:

There is some short term technical support, but breaking through/down it is likely based on the positioning of the indicators I watch. If this area is broken, my assumption would be for the market to retrace the entire June 4 - June 19 rally.

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Yesterday's decline quickly took prices back to a previous zone of congestion, this area of congestion fits nicely between the 38.2% and the 61.8% retracement level.

SPX - Hourly

Notes: Prices bounced today when they touched the 38.2% retracement level, and bulls defended the previous breakout level.

Based on the position of the indicators that I watch, I believe the path of least resistance is for prices to continue lower, at minimum to the 61.8% retracement level which coincides with the lower bounds of this previous zone of congestion.

NYSE McClellan Oscillator

Notes: we have a bearish crossover of the three and five day moving average, and still a very overbought reading.

Percentage Of Stocks Above Their 20 Day Moving Average

Notes: the percentage of stocks above their 20 day moving average closed today at 62%, not oversold by any means.

Advancers Vs. Decliners

Notes: Slightly above neutral.

Advancing Volume Vs. Declining Volume

Notes: Similarly, the 5 day moving average is slightly above the neutral line.


Notes: I would consider this still overbought.


Notes: The TRIN is the only indicator that could be considered oversold, which argues for a bottom here, that said, collectively the TRIN is outvoted so to speak by the majority of the short term indicators.


If 10 is extremely overbought and 1 is extremely oversold, the collective message of the indicators is at a 7 perhaps. Based on this, I would expect the market to eventually get to the bottom range of the previous congestion area. How quickly and where the indicators end up when this occurs will be a good indication if the entire June 4th rally is in danger. At the moment, I believe it is.

Have a good weekend!

-Bill L.

Disclosure: I am long BGZ.