Bulls Do Hold July 28 Low

It was FED Day yesterday and the market celebrated with a strong advance (uptrending day) on increasing volume. Although the short term moving average (bright red line at 1264) did not contain the market during the recent Fibonacci three day decline, it never rolled over and the last pullback low of July 28 held. Now we need to see follow through to the upside to say that the drop over the past few days was indeed a “head fake”. The bulls need to move this market through the resistance band of 1289-1296.

And I think they will. Yesterday’s strong price action means that the daily RSI held the 40 level and the Composite Index created a positive reversal signal - the technicals on the daily chart are once again bullish. More importantly perhaps is that the cash S&P500 was able to break through its resistance line (bold dark downsloping red line).

In my post of Friday, July 18 I wrote:

“… the ADX line (see chart) has now turned down. Wilder says “There is nothing wrong with exiting the system trade when this occurs and reentering in the direction of the next crossing of the DI lines or reentering if the ADX line again turns up.” That is, exiting shorts for now and waiting for further developments. We’ll keep an eye on it.”

Well, the ADX line (black line on chart in top pane) has continuously declined since then and now we are close to a new, bullish, crossing of the DI lines. A move today above the resistance bands would probably do it. The Wilder stop on any open long position (which would have been taken against the trend) remains at Monday’s low of 1247.45.

Yes, short term the market is looking bullish but I continue to think it is within the context of a bear market rally. I remain rooted to what I wrote on July 21: “As far as a general roadmap goes I am looking for the recently begun rally from July 15 to last at least until Labor Day (early September) but I do not expect 1440 to be broken.”