The market exploded out of the gate this morning, accelerating
to new all-time highs amid early dovish Congressional testimony
from Fed Chairman Ben Bernanke. But once Big Ben started to pump
the brakes and uttered the words, "On the other hand," markets
turned on a dime and staged a noteworthy reversal. Although the
(INDEXSP:.INX) finished down only 0.83%, the fact that it reversed
so hard after morning strength is the real concern. The resulting
candlestick, from a technician's perspective, has a clear topping
tail and volume was heavy on the reversal. After an impressive run
in 2013 so far, it would not be surprising or unhealthy for the
S&P to at least re-test short-term moving averages, or even a
previous breakout pivot at 1600 -- but that's still a long way off.
Our firm will monitor key levels and sector relative
strength/weakness over the next two days heading into the holiday
weekend and go from there.
The market only staged feeble bounce attempts in the afternoon
after Fed minutes revealed more discussion about pulling back the
reins on QE, but stocks did close slightly off lows due to a small
push in the last half hour of the session. The rest of the FOMC is
more hawkish than the Fed Chairman, so it is no surprise that the
minutes released at 2 p.m. ET were less market-friendly and caused
the sell-off to intensify. We are in a Fed-driven market, and since
the 2009 lows, every step the central bank has taken has supported
asset prices and pushed people into the equity markets. Whatever
the cause, big institutional players appeared to take profits
today, and that's worth taking note of. I believe it is unlikely
the Fed tapers QE in the next few months with inflation
expectations still so low, but the fact that they are talking about
it has been enough to cause some anxiety.
The daily chart and the 60-minute charts from today (show below)
both show massive topping tails in the S&P. We see the same
topping tails across many sectors right now. If nothing else, this
is now a spot to clean up some loose longs, in my opinion. If you
have been looking for short entry signals, I think this is the
strongest one we've had in a while, but we'll see what it leads to.
I wouldn't put anything past this 2013 market, so you should tread
softly in whatever you do here, in my opinion.
Click to enlarge
Click to enlarge
The 8-day moving average stands at $165.76 and the 21-day moving
average stands at $163.11. These are the next levels to watch.