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‘Good News/Bad News’ For the Market Still the Norm

The good news/bad news duality lingers…. and we have to acknowledge the scales actually tipped in favor of the good news this past week. Let’s lay out the arguments from each side of the table.

The bulls are saying….

1. The late rally on Friday is a huge testament to the ultimate conviction of the market. Buying a stock on a Tuesday at 11 am EST is one thing, as you’ve got five more hours that day to change your mind, and you’ve still got three full days after that to shed it if need be. But to choose to be long the market on a Friday afternoon (when you’re stuck with it for two whole days) is a major, and bold, commitment.

2. We just saw our fifth straight close back above the 200-day moving average line (green), and the bulls went well out of their way on Friday to score that fifth one.

3. The VIX is on the verge of breaking to new multi-month lows; the line in the sand is 21.73.

The bears are saying….

1. While the SPX may have cleared the 200-day moving average, the real test lies ahead, around 1125. That’s where the 100-day moving average line (gray) is, as well as the recent peak level. To make matters more alarming, the 100-day line was also lined up with that ceiling when the market peaked at it in June. Translation? Major hurdle.

2. Even if the 1125-ish area is surpassed, the upper Bollinger band lies dead ahead at 1141. (The longer-term Bollinger bands have been surprisingly important support, resistance, and reversal levels over the last several months.)

3. The market may be going up, but there’s a serious lack of volume behind the move. As such, this impressive move is also apt to be an errant one, and corrected soon.

It’s not difficult at all to realize we are indeed at an inflection point. It may take a couple of days for the market’s true undertow to be realized, but it shouldn’t take much longer than that - one side’s going to have to commit sooner than later. The discussions above point to the items you need to be watching most closely on charts.

S&P 500

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James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.