For the week, the S&P 500 managed to eek out a gain of .9% but boy oh boy you sure wouldn't have thought that. 3 out of the last 4 days, the S&P 500 has had 20 point mood swings with the Dow showing 150 point plus mood swings with the OTC being the stronger of the two but none the less net nowhere for 3 weeks.
Over the last few weeks you've heard us talk about how the OTC leads and sure enough one look at the charts below shows that of the OTC leading relative to the S&P 500 and Dow.
While the S&P 500 and the Dow are still locked in down channels the OTC has broke above it. So does that mean that the S&P 500 and Dow have to play catch up to it? Not necessarily because if the OTC breaks to the downside the S&P 500 and Dow are going along for the ride. One look at the OTC Comp. chart above also shows us tracing out the exact same pattern we have embedded in the chart above that we brought to your attention a few weeks ago and here we are just like clockwork.
Ok all that aside what else do we see going on in the chart above?
A classic 5 waves down of 1(A), then a 3 waves up (abc) of a potential Wave 2 (B). Right up to the 38.2% fibonacci level too I might add. So we've got confluence here and the minimum requirements for an abc being completed. From here all you need to know is that Pink line, a break of it to the downside sets in motion one of three things.
1. A morph of the pattern
2. A retest of the lows if not more.
3. The start of the C wave down to the 200 day average.
Don't understand Elliott Wave? Well that's fine too. We'll make it real simple for you in the charts below. All you need to know can be found in the Pink lines below. A downside break of them gets the ball rolling to the downside.
Lastly here for your viewing pleasure is the S&P 500 chart off the January highs.
Ask yourself -- What is the overall trend of this chart? In the most simplistic sense it's all you need to know.
In Summary Big Picture:
Right now the market is one big indecision and at a fork in the road. Do we head for the 50 day average and some Fibonacci levels?
The OTC MAY have already made that call and has reached minimum fibonacci requirements for a countertrend rally. Odds favor the OTC Comp will be the first to tip its hat next week.
If we are going higher? All rallies ought to be capped by either a fibonacci retracement level (38.2%, 50%, 61.8%) or the 50 day average. Be aware of news driven futures related pops in premarket -- do not get sucked into them on the longside. Why?
Because the bottom line right now is the overall trend off the January highs is down.
Valentine's Day don't forget to kiss your sweetie because a lot of stocks in the market already are. We figured seeing as how it's valentine's day that it would be fitting to talk about kisses. As in Kiss Of Death Retracement (KODR) kisses.
This is what we call an issue that has broken an uptrend and comes back up to kiss the underside of the uptrend it's just broken only to be turned away. The issue tends to roll right back over to the downside shortly there after. Call it a trendline break to the downside with a snapback rally.
As you can see after the Kiss Of Death the Dow promptly rolled over. While we are on this chart we want to bring your attention to the green rectangle boxes in the RSI section. What we want you to notice is that all the while this index was in a clearly defined uptrend and above the 50 day you will notice that it never really ever broke below the 50 level all the while. That said do not be surprised going forward that all the while we remain in this correction that the RSI will now have a hard time going over the 50 level. Start to watch for that.
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Disclosure: No positions