We are seeing signs that we may have hit bottom here. At least for a short term bounce but a retest is certainly possible and playable.
First around the world:
Asia
The Nikkei and China's Hang Seng both ended up green for the day. Both rallied from their days low into the close. So strong closes.
Europe
Europe is currently swimming in red just off their highs but up from their gap down opening. So more strength here than the numbers suggest.
United States
Some key data out at 8:30 this morning as the hunt for the health of the consumer continues in our 2010 recovery. ISM numbers at 10am should shed some insight into whether or not we can maintain the momentum in GDP going forward. Construction needs to show some improvement here at 10am also. Watch for any surprises upside or downside and how the market reacts. This will tell us if the market is more sensitive to strong growth news or weakening economy news.
Earnings:
Mixed bag this morning as this and Friday will be the slowest earnings days.
Breadth Charts:
Last Friday's poor close really put a dent in the sentiment charts keeping them from neutral or even bullish scores.
I posted most of the charts over the weekend.
Read: Prepare for a Bounce and a Re-Test
and: 52 Week New Highs on NYSE, NASDAQ and RUT2K flashing bottom
The total chart scores were -10 which is still bearish. I concentrated my research over the weekend looking for clues of a bottom forming here.
This chart below is a hourly chart showing 65 bar lows (5 day lows effectively) for the NYSE. The readings are the percentage of stocks listed on the NYSE that are making a 65 bar low.
This gives us an intraday view of what some of our end of day charts are telling us. January 22nd's close gave us the highest percentage so far with a reading of over 49%. Each subsequent low has had lower readings and this is a bullish divergence. Like all divergences they can go on for a long time, but it does show us that the underlying weakness is being eaten away here and we will enter either a consolidation (that would be bad) or preparing for a thrust upward to the highs.
Conclusion:
We remain bearish as that is fashionable now. There are signs that a bottom is being put in place as underlying weakness is evaporating. A bounce and a retest are a possibility from here.
The SPX is setup as follows. The bulls need a push above 1095 today. That would break the downward trend line I have added. 1100 is extra credit for the bulls. The 1101.32 yellow line is the 38% fib number where if a retest is going to happen is a high probability area for a leg up to fail.
Bears just need some lower prints. A failure around 1090 or along the orange trendline would be a perfect script for the bears so watch that area today.
Hope to see you in the markets or in our trading room.
Marlin aka: RedlionTrader
