If you click the chart of the S&P 500 Index (SPY) above, you'll see that, since September, forays above the 20-day moving VWAP line have been short-lived. With today's continued rally, we're now peeking above that level.
A hallmark of a downtrending market is that sharp short-covering rallies serve as opportunities for further selling by the bears. It is how large institutional traders respond to market strength that determines whether this is a rally in a bear or the start of a bottoming process.
I will be following the Cumulative TICK, new highs/lows, and sector strength to gain some clarity on this issue. To this juncture, rallies above the 20-day VWAP have been bear traps. Will the November support now act as resistance and keep us in bear mode? Or can we sustain prices above that level? As long as retracements are shallow--like we saw yesterday and this morning--we have to respect the rally and the clear strength in the Demand/Supply numbers. I'll be updating those numbers tomorrow morning before the open via Twitter.
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5 comments:
The market seems to be trading a lot like it did prior to Lehman Brothers. Aggressive moves away from moving averages resulted in strong and powerful snap backs that were generally more powerful and profitable than playing the short side. Of course Lehman changed everything and fading serious weakness was a disaster. Perhaps the Fed Chairman reassurances about no more financial firms failing is again causing people to take serious and perhaps misguided risks. I question whether the fed can really prevent all bad things from happening.
Our moral hazard problem has probably gotten even worse
I think you got the wording wrong, bull trap instead of bear trap
Looks like Goldman's reading your blog. Now we should start to see a lot of buying on the close to inflate prices and take the edge out of this idea.
I think Dr Brett actually meant Bear trap - as in bears ran at a loss, only to see price coming back down shortly after to where they've sold.
Thanks for pointing out my wording error!
Brett
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