Monday, June 21, 2010

IT and ST thoughts

We are in a ST rally in a IT downtrend. The IT trend turned down after we broke the Feb 2010 weekly pivot at 1044 on 5/25/10. The action is reverse of what happened when we broke the 943 pivot in June 09. Once a weekly pivot is broken, the market cannot repair itself in days and rally to new highs. When the weekly pivots were intact, there were bold statements calling for the TOP of the bull market on the message boards. Now that the weekly pivot is gone, there are bold statements about possible new highs on SPX in the coming weeks. Broken trends don't turn on a dime. If it did, there would be no trend traders around. I hear comparisons of this decline to that of July 07 decline and subsequent rally to another high in Oct 07. Well, the July 07 decline did not break the prior weekly pivot at 1363. So the weekly uptrend was intact then. What we have now is a broken weekly trend which needs to be fixed.

I see two ways this can be done:

1) Complex bottom on the NYSE MCO.


2) We establish a weekly pivot in the SPX 1130-1150 area, go down and make new lows and then rally back up and break that pivot.

Until one of these happens, all ST rallies are bound to fail and the IT downtrend will continue. We are in the sweet spot of SPX 1130-1150 where this rally could fail. Currently the ST is on a buy, but keep an eye for a rally failure from this area.