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Market Posture and a close eye on CTSH

April 9, 2007
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Because I won’t be able to attend the meeting this week, I thought I would take my stab at identifying the trends of the market. In our last meeting we did a market posture that I recounted on the blog here. The end result of a very measured walk through all the angles was a bearish stance. It kind of stinks to do all that work and see the market rally in the next week. But should our stance on the market change?

Remember that this exercise is done with an emphasis on choosing an intermediate term stance on the market. That means a time frame of the coming 1-6 months.

  • Long term, still bullish. Higher highs and higher lows.
  • Short term, still bullish. Higher highs and higher lows. New high made this past week for this shorter trend. When we looked at it at the meeting, the higher low we had was just barely a higher low. It is now unquestionably a bullish short term trend.
  • Intermediate term, I’d say we’ve changed from Neutral/Bearish to Neutral. We discussed that the former long uptrend of higher highs and higher lows was clearly broken. We appeared to have put in a lower high, but now that has been taken out and we’re waiting to see if we put in a new lower high or if we power back up to and through the former high.

Look at these three views of the SPY, which I used for the reference of volume. It seems significant that though the recent high that we spoke about last week was broken this week, it was done with very low and decreasing volume before the holiday weekend.
(Click it for a bigger view)

The Market forecast shows the green intermediate term line heading up with room to go along with the longer term sentiment line having turned upward. These are bullish signs. This chart even shows that the 20 MA is headed upward toward the 50, which the index has reclaimed.

The VIX has moved lower to the bottom of its recent range, but I see it sitting right on support. My reading of it is that it would be more likely to bounce up from here than move down. This has a bearish implication, but until that happens and even if it does move lower, I will read this as Neutral. Here is a weekly chart.

Putting all this together, I would read the result of this market posture exercise as cautiously bullish. But because the intermediate trend of the SPX was broken and is now still is in question, I’m reluctant to fully embrace this rally. Though I may put on bullish trades, I will keep them on a short leash and I will continue to watch for bearish trades.

Back on January 28, I did a post suggesting potential for a sideways market. Perhaps it was a bit premature and wrong to think of some nice and orderly sideways market. But I may have also been on to something. Given the look of things now, it would not surprise me to see the market stuck in a range between 1375 and 1460 or 137.5 and 146 on the SPY. That’s plenty of room for daily and weekly turbulence.

In a recent post I included a potential bearish setup on CTSH. (it’s toward the end of that post) The support line hasn’t broken yet, but after an attempted bounce the stock has now bounced down from the 30 MA. Thursday’s candle was a dragon-fly doji star, much like hammer in its implications, though it has yet to be confirmed with a higher close. But, as always, the primary consideration is support and resistance. Watch for that support line to break on big volume.

Have a great week!

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