2nd oversold buy setup of the year

I failed to note that early March was my 1st short to medium term buy signal of the year. At that time I added a comment to that post of a brief rally thinking a retest lower (and trigger the buy signal) would occur which it didn't happen. Only difference was that the this past week's correction has been more deep resulting in the major indexes to finally retouch their 50 day moving average (only the NDX, Nasdaq 100, is still +1.5% above its 50dma.) So what now? The setup is there for at least a short term bounce if not a medium term move higher. The chart included is what I'm anticipating... a brief rally and then move down back toward today's low and possibly lower before getting A bottom. That's the scenario I'm looking at. Of course there are the best and worst case scenarios but those are the extreme ends of the bell curve.

SP500 within its 50 day moving average

Couple posts ago I noted that the major indexes could continue higher slowly while majority of the individual stocks will struggle by either consolidating or pull back more on corrections... but the major indexes will eventually start moving lower. And this was the classic internal weakness that has occurred since my last post as the major indexes has finally pulled back in this past week. The SP500 is within 1% of its 50DMA as the stock market has entered oversold conditions. This condition should lead to somewhere between either a quick bottom and rally OR a bottom process that will require more downside probing before an eventual rally. I'm anticipating the latter.

Looks like a breakout higher...

My added comment from the last post called for a brief rally. Instead it has been a very strong breakout higher as the major indexes are making new 52 weeks highs. I would had expected the major indexes to pulled back more to retest their 50 days moving averages but hasn't yet. The European and Asian stock markets did do that last week. But the U.S. stock market has outperformed and can on rare occasions will just pull back close to but not touch their 50 DMAs. Still, even though the stock market could continue higher I would be cautious of possible swift pull back to the 50 DMAs.

short term calls for a likely pullback

From last post the SP500 and the rest of the major indexes did moved higher. The SP500 1370 level was where I was looking for whether it'll hold or not but I was expecting maybe another 1% higher to get the bears to throw in the towel. Maybe it did or did not. Well anyway I have provided a chart that shows the SP500 since the March 2009 bottom with the blue line being the 50 day moving average. I have also drawn short red lines to shown how long the SP500 went without touching its 50 DMA. The longest has usually being 2 to 3 months so currently it's at 2 months and I expect the SP500 (along with the rest of the major indexes) will return to the 'mean aversion' and head lower for the short term to touch their 50 DMAs.

update of last post: could be short term bullish

The last post looked for a short term pullback from 3 to 5%. A week has past and thus far any intraday pullbacks has be met with buying soon after. The Nasdaq and NDX 100 are up +1%. The Dow, Russell 2000, and NYSE Composite are down less than 1%. While the SP500 is up 1/2% with its last year's highs ranging in the 1350 to 1370 level. Thus far the SP500 has held up well at the 1350+ level this past week. Despite some hints of recent internal weakness of individual stocks compared against the major indexes, which means if any selling can't bring the stock market down now then it'll delay it for later, the current consolidation could evolve into another rally higher for the short term. The Nasdaq and NDX 100 are the current leaders but will see whether the stock market will be able to hold the gains if and when the SP500 reaches the 1370 level.

Note: Thus far the posts from August to November of last year have worked out very good as the calls for a long term bottom and rally has been rewarding to the upside. You can go back and review the calls for a bull market while most were fearful for more downside in the coming months.

bullish momentum encounters resistance

The stock market had a nice rally since the last post with over +10% move for the major indexes. The Nasdaq has exceeded last year's high and the Dow is just at last year's high. So this market action could hint for more bullish move higher later in the year. For the short term, and possibly medium term, there could be some caution for the stock market as the SP500 is still a few percentage points below it's 2011 highs. If this were to be the case of either a pause or a bigger correction then there should be buyers below the SP500 1300 level (with 1250 being strong support.) On the other hand, if bullish momentum continues to overpower any brief weakness than there could be just a slow move higher.

got the drop, now looking for a bounce...

From the last post I noted that the inability to hold the SP500 1225 level after an initial bounce could result in a +3% move below the 1225 support level. Right now the SP500 reached an intra-day low of +3% below the 1225 breakdown. With the stock market being short term oversold I would look for short term bounce to start very soon either by tomorrow or Wednesday. The chart included shows what I'll be looking for... a bounce rally back toward the 1225 level and then back below today's low of 1183 (or the price low tomorrow if it moves below 1183) before getting a better short term or even a medium term rally back higher. Other scenarios could develop... the stock market can go either much higher or lower... but we'll see what develops in the coming weeks.